Harley Davidson Inc.

2008
Strategic Audit of the Company
(Case Study)

Ataberk Tumay - Burak Alp Catak - Erdem Mert

 Outline

● Current Situation
● Corporate Governance
● External Environment and SWOT
● Internal Environment and SWOT
● Analysis of Strategic Factors
● Alternatives and Recommendations
● Implementations
● Evaluation and Control
About Harley - Davidson Inc.

- Founded by William Harley and Arthur and Walter Davidson in 1901 in Milwaukee, Wisconsin.
-In 1903, they had sold a total of 3 bikes and 1904 a total of 8.
-In 1907, William and Arthur established their business as a company in Juneau Avenue, Milwaukee,
Wisconsin.
- 1907 Chicago Auto Show helped promote the Harley-Davidson brand.
- By the end of 1908, dealerships were established in New York, Chicago, Philadelphia, Atlanta,
Newark, and many more cities.
- By 1912, Harley-Davidson had over 200 dealerships and began distributing motorcycles overseas in
Japan.
 History

1901 ⇒ Establishment, William Harley

1969 ⇒ Amf Inc. acquired (Cap.15k,1969 ⇒ 40k, 1974)
1981 ⇒ Strong Japanese competition ⇒ Vaughn Beals 65M USD
1993 ⇒ Acq. %49 interest in Buell Motorcycle Comp.
1996 ⇒ Core Motorcycle Business (Relase)
 Current
Situation
Harley-Davidson Today

• Roughly 868 licensed dealers throughout the US.

• More than 1550+ licensed dealers worldwide.
• Publicly traded on the NYSE. (HOG)
• Currently owned by Willie G. Davidson.
• Headquartered in Milwaukee, Wisconsin
• Sales: $5.8b in 2006 ⇒ $5.73b
• #of sales 2006 vs 2007 -34.981 (overall 337.774, in 2007)
Competitors
 Current
Mission

• Harley-Davidson Vision Statement

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

• Harley-Davidson Mission Statement

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

• Happy and satisfied stakeholders (Customers, employees, suppliers, investors,

government and society)

• Make their customers purchase their products throughout their life time due to
their unforgettable experience they have doing business with Harley-Davidson.

• Backbone: Strong brand name and royalty with customers

 Current
Strategies
• Build Brand Loyalty and Selling Dreams
• Customer Focus
• Wide range of products
Children tricycles, clothing, luxury motorcycles
• Allowing customers to personalize and customize
• Brand Loyalty
• Groups (Harley Owners Group (HOG) and the Buell Riders Adventure Group (BRAG))
• Importance of employees passions and their attitudes toward the company (Diverse
employees to provide different perspectives in company)
• In 2008, Harley-Davidson will be heavily investing in three areas: marketing, product
development and their people.
• Attracting young people
• Increasing and supporting female riders
 Current
Policies

OPEN DOOR Policy

• Minimize traditional approach

• Maximize and Encourage the employees involvement
• Allowing employees to participate key business decisions
• Employee recognition programs to encourage and reward them
for outstanding work.
 Corporate
Governance

BOARD of DIRECTORS
Independent Directors ⇒ NYSE, laws, regulations, rules

• 11 Board Members
the Chairman, Jeffrey L. Bleustein;
the Directors: Barry K. Allen, Richard I. Beattie, George H. Conrades, Judson C. Green,
Donald A. James, Sara L. Levinson, George L. Miles Jr., James A. Norling, Jochen Zeitz;
and the President, CEO, and Director; CEO, Motor Company, James L. Ziemer.

Further analysis of the employers list showed board members, Jeffrey L. Bleustein, James
L. Ziemer, and Donald James, are internal and the others are presumed to be external.
 Corporate
Governance
Top Management
41 Top Management Personnel

Eleven of the most important personnel seem to be: Chairman, Jeffrey L. Bleustein,
the President, CEO, and Director; CEO, Motor Company, James L. Ziemer, the EVP and
CFO, Thomas E. (Tom) Bergmann, VP and Treasurer, James M. Brostowitz, EVP,
General Counsel, Secretary, and Chief Compliance Officer, Gail A. Lione, VP, Strategic
Planning and New Business Development, Motor Company, John A. Hevey, President
and COO, Harley Davidson Motor Company, James A. McCaslin, VP Human Resources,
Harley Davidson Motor Company, Harold A. Scott,SVP and Chief Marketing Officer,
Harley Davidson Motor Company, Mark Hans Richer,President, Harley Davidson
Financial Services, Saiyid T. Naqvi, SVP Product Development, Harley Davidson Motor,
 External
Environment

• Natural Environment

• Societal Environment

• Task Environment
 Natural
Environment
• Cold Weather
– Motorcycles are more used in warmer times. But
seasonality generally didn’t affect HD that much.
– But as production increases they expect more seasonality.

• Oil is limited
– Harley-Davidson focuses on mostly big and bulky
motorcycles. Which use oil a lot. In normal times this
might not be a problem, oil is limited but there is still
enough.
– But in times of crisis where oil prices increase this
becomes a threat for HD.
 Societal
Environment
 Societal
Environment
Economic
• Economic crisis is affecting the economy (T)
– With economic crisis continuing and not knowing how long it will last people are starting to
spend less.
– According to critics, motorcycles are easily deferred products and as economic crisis lasts
people won’t be willing to buy Harley-Davidson.
– Harley-Davidson’s buyers are upper-middle class to upper class, so they are less affected by
the crisis.
• Material and oil prices are rising (T)
– With economic crisis both oil and material prices will continue rising. It will make already
expensive motorcycles more expensive.
• Asian economy is booming (O)
– Asian economy is less affected by the crisis.
 Societal
Environment
Technological
• Technology is rapidly developing (O)
– Both Harley-Davidson and its competitors are working hard to develop new technologies.
– Harley-Davidson’s V-Rod has a new design, a new engine, and much better performance.

• E-commerce is becoming more widespread (O)

– E-commerce market is globally growing as people use internet for shopping more.
– Harley-Davidson has a highly interactive website where customers can use it to buy
motorcycles.
 Societal
Environment
Political - Legal
• New regulations are coming up (T)
– New regulations on emission, noise, pollution, environment and safety standards force Harley-
Davidson to change their designs according to them.
– From time to time Harley-Davidson initiated voluntary recalls.

• Harley-Davidson is seen as an American Icon (T/O)

– Harley-Davidson is usually seen as the American brand. This is good for America and countries
that have close relation with America. But in places where America is seen in a bad light it will
become a negative.
 Societal
Environment
Sociocultural
• Female interest in motorcycles are rising (O)
- Compared to past females are now more interested in motorcycles and they are a
growing market.
- Harley-Davidson included female racers to their race team and partnered with Jane
magazine to create contests aimed at females.
• Young people are becoming more interested in motorcycles (O)
- Young people prefer more sleek and faster bikes. Harley-Davidson produced V-Rod in
order to capture the young people but couldn’t because of its price tag.
- Harley-Davidson is trying to create low costs starter bikes and capture young people.
After that turn them into loyal customers who buy more expensive bikes.
• Customers care about quality (O)
- Compared to past HD has improved their quality by many folds. They force their
suppliers for quality and also quality is a major part of their production.
 Societal
Environment
Sociocultural
• Baby boomers are getting older (T)
– The average U.S. Harley-Davidson motorcycle purchaser is a married male in his late-forties.

– Median age for Harley-Davidson buyers was 34.1 in 1983, but in 2006 it is 47.1.

– Median age of Harley-Davidson customers are growing with the company. Most Harley-
Davidson buyers in 2006 were experienced motorcycle owners.

– Harley-Davidson’s customers are loyal but Harley-Davidson isn’t getting new young customers
and their customers won’t be able to ride motorcycles as they grow older.

– Lastly riders over 40 accounted for 40% of all fatalities in 2000.

 Task Environment
Five Force Analysis

• Competitive Rivalry (High)

– The heavyweight market where Harley-Davidson

mainly focuses is extremely competitive. (T)
– Major competitors are based outside of America
and generally have more financial and marketing
resources.
– Harley Davidson is the dominant player in the
domestic market with 49,3% share compared to
14,2% share of the next big competitor.
 Task Environment
Five Force Analysis

• Buyers’ Power (Moderate)

– HD has a very loyal customer base. Purchasers of HD

motorcycles have a repurchase intent that exceeds 90%
– Customers have variety of brands to choose from. (T)
– Groups like H.O.G. increase brand loyalty.
– HD motorcycles are customizable and different than their
competitors.
– Demand is higher than supply.
 Task Environment
Five Force Analysis

• Power of Other Stakeholders (High):

– Quality, safety, environmental regulations

increasing (T)
– Different countries and even different states in
the same country have different regulations
– HD has to follow these regulations or face fines
and recalls
 Task Environment
Five Force Analysis

• Supplier’s Power (Moderate)

– Top suppliers are included in design and planning

process.
– Deep and trusting relationships with suppliers.
– There are many suppliers that would want to work
with HD.
– Switching most suppliers would be easy
 Task Environment
Five Force Analysis

• Threat of Substitutes (Moderate)

– There are many other companies in the market.

– If the price gets too high or quality drops, customers
can switch to another firm.
– Switching cost is high. HD offers more than a bike, it
offers a lifestyle and many customers are loyal.
 Task Environment
Five Force Analysis

• Threat of New Entrants (Weak)

– Requires technical know-how in order to enter the

market
– Companies in the market are strong and are
competing fiercely
– Would require a large amount of investment,
experience and time.
– Creating a trustworthy brand isn’t easy.
– Economies of scale
EFAS Table
 Internal
Environment
• Corporate Structure
• Corporate Culture
• Corporate Resources

a) Marketing
b) Finance
c) R&D
d) Operations and Logistics
e) Human Resources
f) Information Technology
 Corporate
Structure

– The LSC (Leadership and strategy council) is a

model that classifies industry problems by
distributing and disrupting the business process
of a company. By disrupting the process, the LSC
can analyze if there has been a significant
accomplishment of the company’s, HR (human
resource guidelines), tactical strategies, finance,
mode of operations and direct cross
functionality. The LSC ensures the company’s
structure will be effective and functional.
 Corporate
Culture

● Harley-Davidson’s corporate culture specifies the traditions, habits

and values that influence employees’ behaviors and managerial
decisions. As one of the top players in the global motorcycle
market, Harley-Davidson maintains an organizational culture that
supports the company’s industry position.

● In addition, this corporate culture strengthens the company’s

customer base of bikers loyal to the brand and the chopper biker
culture. As such, the organization and the chopper biker culture
benefit from Harley-Davidson’s corporate culture.
 Corporate Resources
Marketing

● Marketing was divided into two several areas that are

common that are common for most ll companies.
These areas included Dealer Promotions, Customer
Events, Magazines, Direct Mail advertising, Public
Relations, Cooperative Programs with TV
commercials. You will also see Harley promotions at
several popular sporting events such as racing and
even UFC.
 Corporate Resources
Finance

● In 1985, Harley Davidson was 4 hours from shutting

the doors. Citicorp, Harleys main lender denied
lending money in 1985 but with only 4 hours
remaining to find a lending company, Harley made a
deal with Heller Financial and managed to save the
company.

● At this current time, it is now funded by HDFS

(Harley Davidson Financial Services). Which is a
lending company for Harley Davidson motorcycles
among several other helping factors. This means the
company basically now funds itself.
 Corporate Resources
R&D

● Harley feels that research and development of three

custom and touring motorcycles is a large part of the
way they compete against the competition. They
spent $178.5 million in 2005, $177.7 million in 2006
and $185.5 million in 2007 in areas such as style,
purchasing, and manufacturing.
 Corporate Resources
Operations and Logistics
● Harley Davidson has 684 leadership in U.S. and of
307 of these were also Buell dealers, 104 of them
were Secondary Retail Locations (SRL), 68 of them
were Alternate Retail Outlets (ARO), and 12 of them
were Seasonal Retail Outlets( SRO). This makes the
US largest supplier in sales of Harley Davidson
motorcycles.

● %22 of company sales came from foreiign operations

in Europe/Middle East/Africa at 370 dealers with 323
being combined with Buell, in Asia-Pacific, 130
Harley dealers with 57 selling both brands,
Latin America with 31 dealers none of which also
sold Buell’s, and Canada which has 75 dealers, 45 of
them sell both brands of motorcycles.
 Corporate Resources
Human Resources

● Approximately, %50 of the manufacturing employees

of Harley Davidson’s own Harley’s themselves and
buy from dealerships so they have first hand
experience with what they are contributing too as a
workforce. There are roughly 9000 employees of
Harley Davidson.
 Corporate Resources
Information Technology

● In 2003 , it was seen that Harley Davidson had a limited IT controls in

place and a major chunk of the staff had no control knowledge.
● No standardized user process to access data and IT applications,
which made life difficult for users and exposed the application to
hackers.
● No defined change management process to capture information about
who made change.
● Limited documentation about processes and most of the work done in
IT was person dependent.
● With the implementations Harley Davidson did, they created a
completely new department and began implementing many of the
general compliances models sourced from vendors.
IFAS Table
SFAS Table
 Reviewed Mission

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

• Mission statement is fitting.

• Harley-Davidson fulfills dreams. They offer a lifestyle, not just a motorcycle.
• Target customers are motorcyclists and general public
• Expanding line of motorcycles will help Harley-Davidson
• Harley-Davidson should expand their market segments in order to deal with threats and
weaknesses. And use opportunities and strengths. That part can be changed to expanding
market segments.
 Reviewed Objectives

Objectives should be grounded, clear and achievable.

Objectives relating with the swot analysis should be:

• Extending motorcycle line to include motorcycles
that are appealing to young people
• Providing high quality products to our customers
• Giving female riders more inclusion
• Focusing on R&D in order to develop more
efficient and more technological motorcycles
• Increasing our international presence
• Keeping our brand strong
TOWS Matrix
 Strategic
Alternatives
 Strategy 1
Growth
• Growth through vertical expansion by acquiring suppliers.
– Costs of the motorcycles is a weakness of HD. Because of high costs HD can’t attract
young customers and with coming crisis current customers will also have a hard time
buying bikes.
– Acquiring key suppliers will help with material costs during the crisis. And after the crisis
as well.
Pros
– Lower material costs which will decrease the price of bikes.
– Lower prices will attract young people and will help during the crisis
Cons
– Buying the suppliers will be expensive. Especially when we don’t know how long the
crisis will last
– Less focus on core competencies
– Not experienced in that industry
 Strategy 2
Stability
• Continuing our current strategies through no change strategy.

– HD’s current strategies include reducing costs through R&D, international growth,
attracting more female riders, attracting young people through cheaper motorcycles,
sleek designs and faster bikes.
– These strategies will help HD both in the long term (reduced costs, more efficient
bikes, new customers, international growth) and in the short term (money from
international sales to help with the crisis, new customers.)
Pros
– Reducing price through R&D
– Gaining new customers (female and young people)
– International growth
Cons
– R&D takes time and Money
– No drastic measures for the crisis
 Strategy 3
Retrenchment
• Retrenchment through lowering production even more.

– HD doesn’t know how long the crisis will last or how strong it will be. HD can lower their
production even more and make their bikes exclusive with premium prices.
– HD’s customers are upper-middle and upper class. By lowering production and making bikes
more exclusive HD can focus on upper class customers who are less affected by the crisis.
Pros
– Upper class customers will be less affected by the crisis and will buy our products.
– Sales will go down in volume but prices will rise
Cons
– HD will lose a big part of their customers. Loyal customers might feel betrayed.
– Gaining new young customers will be a lot harder because of price
– This will have lasting effects on brand image
 Recommended
Strategy
• Stability through no change is recommended.

– HD doesn’t know how long the crisis will last or how strong it will be. Taking drastic and
panicked decisions during this time will be dangerous.
– HD’s current strategies are good and will be helpful especially in the long term.
– HD must focus on R&D to reduce prices, create more efficient bikes and must focus on
marketing in order to draw new customers.
– HD’s financial services can help customers during the crisis while buying motorcycles.
– Getting more female customers and more young customers will also help with the problem of
aging baby boomers.
– Steady international growth will also help in the long term.
– HD is a big and strong firm and can afford to focus on its marketing and R&D during the
pandemic.
 Recommended
Strategy
• Stability through no change is recommended.

– HD doesn’t know how long the crisis will last or how strong it will be. Taking drastic and
panicked decisions during this time will be dangerous.
– HD’s current strategies are good and will be helpful especially in the long term.
– HD must focus on R&D to reduce prices, create more efficient bikes and must focus on
marketing in order to draw new customers.
– HD’s financial services can help customers during the crisis while buying motorcycles.
– Getting more female customers and more young customers will also help with the problem of
aging baby boomers.
– Steady international growth will also help in the long term.
– HD is a big and strong firm and can afford to focus on its marketing and R&D during the
pandemic.
 Recommended
Strategy
• Stability through no change is recommended.

– HD doesn’t know how long the crisis will last or how strong it will be. Taking drastic and
panicked decisions during this time will be dangerous.
– HD’s current strategies are good and will be helpful especially in the long term.
– HD must focus on R&D to reduce prices, create more efficient bikes and must focus on
marketing in order to draw new customers.
– HD’s financial services can help customers during the crisis while buying motorcycles.
– Getting more female customers and more young customers will also help with the problem of
aging baby boomers.
– Steady international growth will also help in the long term.
– HD is a big and strong firm and can afford to focus on its marketing and R&D during the
pandemic.
 Implementation

Programs

Most of the programs are already in place for Harley-Davidson to use. The only issue would be to shift
the focus of the company in order to improve these programs. Another issue is going to be funding and
how these programs are going to take a larger piece of the pie that before.

Financial Feasibility

Increase revenue even with their less successful decisions. Harley-Davidson needs to bite the bullet so
to
speak when it comes to these three pressing issues and this will continuously pay off in the future.
 Evaluation & Control

Current Information System

Harley-Davidson’s current information system is more than capable of handling the strategies
previously discussed. One area which may need improvement is their research and development
area.

Control Measures

Harley - Davidson is not new to running a business and therefore is established in controlling their
changing company. In the past Harley-Davidson has shown to deal with change very well within
their company. The only difference in the recommended strategies would be to run a more
intensive follow up with each of these strategies due to their risky nature.
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