Description
This PPT is a case study examines the Harley-Davidson phenomenon. From near bankruptcy to double-digit growth every year, how Harley-Davidson worked on strategic planning and development.
HARLEY DAVIDSON INC.
CASE STUDY ANAYLSIS
TABLE OF CONTENTS
Title Page…………………………………………………………………………………... Table of Contents…………………………………………………...……………………..2 List of Figures and Tables…………………………………………………………………3 Executive Summary……………………………………………………………………….4 Introduction…..……………………………………………………………………………6 Industry Analysis………………………………………………………………………….8 Mission Statement…………………………………………………………………………9 Internal Audit (Strengths, Weaknesses)……………...……………………………………9 Brand Loyalty………………………………………………………………………….9 Products………………………………………………………………………………..9 Markets…………..………………………………………………………………...…11 External Audit (Opportunities, Threats)…………………………………………………13 Customers………..…………………………..………………………………………13 Markets……………..…………………………………………………………..……14 Competition………….………………………………………………………………15 Strategic Alternatives and Recommendations…………………………...………………17 Summary…………………………………………………………………………………18 Appendixes………………………………………………………………………………… CPM –A……………………………………………………………………………….. EFAS – B………………………………………..……….……………………………. IFAS – C ……………………………………………………………………………… TOWS – D……………………………………………………………………………. Income Statement – E………………………………………………………………… Balance Sheet – F………………………………………………..……………………. Cash Flow – G…...……………………………………………………………………. Corporate Scoreboard – H………………..……………………………………………
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LIST OF FIGURES AND TABLES
Table 1 – Competitor Comparison….…..…………………………………………………8 Figure 2 – Motorcycle Shipments…….….………………………………………………10 Figure 3 – Customer Demographics…………………………………………………13, 14
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EXECUTIVE SUMMARY
This case study examines the Harley-Davidson phenomenon. From near bankruptcy to double-digit growth every year, Harley-Davidson has worked on strategic planning and development.? With the global economy growing, companies are looking for ways to improve their market share. 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. This case study will identify those strategies that have worked and brought the company and its shareholders success each year. Today, Harley-Davidson Inc., an employer of 8,100 workers, consists of HarleyDavidson Motor Company based in Milwaukee and Eagelmark Financial Services Inc. based in Chicago, Illinois. These are strategic business units are they are managed separately based on the fundamental differences in their operations, products and services. In addition, there are nearly 1,500 dealerships worldwide. Harley‘s commitment toward continuous improvement is exemplified in the supplemental financial statements, Appendix section. Harley‘s strategic objective is to continue to provide safe, high technology heavyweight bikes and keep customer satisfaction at high levels. These qualities vision more than doubled Harley-Davidson‘s market share and increased its brand loyalty. Harley-Davidson‘s products include: motorcycles, parts & accessories along with financing services. Three main geographic markets comprise the bulk of motorcycle sales: North America, Asia and Europe. Harley-Davidson‘s customers are comprised of both male and female with the female segment the fastest growing market at 5% yearly. Expansion into the European
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and especially Asian markets will be forthcoming. These new market opportunities will require new designs that are lighter, easier to use, comfortable and stylish. Motorcycles are no longer thought of just a mode of transportation. The Harley-Davidson motorcycle welcomes you into a family, a culture of the free and willing sprit. Future threats to prepare for include the increase in European trade tariffs on wellknown brands such as named, Harley-Davidson. Production plant expansion should shorten the wait time for manufacturing new bikes. This has been a weakness of HarleyDavidson for years. It adds to the mystique, but the risk of losing customers is also present. The latest financial reports found in the Appendix section confirm HarleyDavidson‘s successful strategies. Year 2001 sales at $3,363.4 (mil), a growth of 15.7% from previous period. Year 2001 net income at $437.7 (mil), a growth of 25.9%. HarleyDavidson has successfully captured 60% of the motorcycle market. The future at Harley-Davidson is expected to do very well and increase market share even more where penetration into the Asian and European market is expected. The 100-year anniversary is scheduled for August 2003 in Milwaukee, WI where approximately half a million people are participated in celebration. The American icon is very much alive and desired among people around the world. The Harley-Davidson tradition knows no boundaries but is a culture of its own. With that kind of brand recognition and strategic management, this company is expected to enjoy success another 100 years.
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HARLEY DAVIDSON INC.
Case study of an American icon and the successful strategies INTRODUCTION
Harley-Davidson Inc. at a Glance
Founded: Headquarters: 2001 Net Sales: 2001 Net Income: Business Units: Number of Employees: Number of Dealers: 1903 Milwaukee $3,363.4 million $437.7 million Harley-Davidson Motor Co., Eaglemark Financial Services Inc. 8,100 1,200 worldwide
Number of Motorcycles Produced per Year: 263,000 in 2002; targeting 289,000 by 2003
Perhaps more than any other 20th century product, the Harley-Davidson motorcycle is revered as an American icon - a symbol of free-spiritedness. While this gives Harley marketing advantages, it carries the responsibility of upholding the qualities that customers identify as the essence of Harley. Harley-Davidson is the only major US maker of motorcycles and the nation's #1 seller of heavyweight motorcycles who has held the largest share of the U.S. heavyweight motorcycle market since 1986. Besides its bikes, Harley-Davidson sells a licensed line of clothing and accessories with the company name and now offers financing. Also, gaining attention are the Harley-Davidson Cafes, located in various cities including New York City and Las Vegas. In addition, many of Harley-Davidson owners/riders are members of the Harley Owners Group better known as H.O.G., with more than 500,000 members nationwide. The demand for Harley-Davidson motorcycles continues to rise. Other motorcycle manufacturers have tried to compete with Harley-Davidson, but none have been able to match Harley-Davidson in terms of customer loyalty and sales. The dedication to its
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existing customers has created a loyalty that is desirable by many other companies. The case study will allow an in-depth look into what strategies have made the company so successful and what to expect in the future.
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INDUSTRY ANAYLSIS
The industry is this case study is the motorcycle industry consisting of five major manufacturers: American (Harley Davidson, Indian Motorcycle), and Japanese (Honda, Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany and some other Italian companies). Industry sales of motorcycles were shrinking in the early l990s because of the recession and the competition from computers and electronic products decreasing consumers' discretionary income. The sales of accessories and parts make up 36% of total retail sales and are a viable area for producers to explore because people want something to personalize their bikes. Previously, motorcycles were viewed as a cheap means of transportation. By 1992, they came to be viewed as a recreational, or a luxury item. This new perception of motorcycles led to the introduction of more expensive models with higher prices. This in turn created a new market for Harley-Davidson of consumer financing, one of the fastest growing service areas in the motorcycle industry. The table 1 comparison shows Harley Davidson continues to show strong growth in sales that increased by 15.7% over previous year whereas BMW gained massive sales in 2001, yet growth was only at 2.3% indicating their marketing may be reaching a peak.
2001 Sales 1-Yr. Sales 2001 Net Company (mil) Growth Inc. (mil) Harley Davidson $3,363.4 15.70% $437.7 BMW $34,071.0 2.30% $1,653.0 Indian Motorcycle $1,512.0 6.10% $91.4 Table 1 1-Yr. Net 1-Yr. Inc. 2001 Employee Growth Employees Growth 25.90% 8,100 5.20% 71.10% 97,275 3.90% 10.40% 3,550 -0.30%
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VISION AND MISSION
To treat customers and employees honestly and fairly. To provide a clean and a safe work environment. To manage our business efficiently and profitably. To understand that we exist in a changing marketplace with increased competition. To be supportive and well thought of in our community. And to remember that our business is more than the bottom line. We gotta have fun; enjoy working with each other and with our customers.
INTERNAL AUDIT (STRENGTHS, WEAKNESSES)
BRAND LOYALTY The Harley-Davidson corporation's ability to evangelize the Harley lifestyle without alienating a customer-base, which prides itself on being free-spirited and countercultural, has been a testament to its marketing shrewdness. "We're proud of our motorcycles, and we are committed to a lifelong relationship with our customers. That's why Harley-Davidson is much more than a machine. It's a way of life." Harley-Davidson's business design is based on long-lasting relationships not only with their customers but also with all their stakeholders. Harley-Davidson's mission to fulfill dreams extends beyond their customer; it is their goal to create mutually beneficial relationships with all their stakeholders - customers, employees, dealers, suppliers, investors, government and society. While the company holds 60% of the market, managers are by no means asleep at the wheel. Harley-Davidson upholds its reputation for quality and good service retaining the customer base and securing new customers to the brand as indicated in figure 3.
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PRODUCTS Harley Davidson produces only heavyweight motorcycles (with engine displacements of 750cc or greater) that are categorized into touring and cruiser motorcycles. Touring motorcycles are designed for long distance riding and feature many car like features (i.e., trunks), and provide Harley with the greatest profit margin. Cruisers are styled after early motorcycles and are the kind most often associated with Harley. They provide a very low profit margin because of their low prices but are used as a means to attract young customers. Strategic managers study demographics such as illustrated in figure 3 very carefully. Trends are identified and strategies for the next new product launch and market penetrations are readied. Implementation is crucial along with timing. For example, for year 2003 the company will produce special models in limited quantities for the 100-year anniversary. Not to be forgotten is the part and accessories (P&A) business, which has grown remarkably during the past years, and it is expected to grow slightly faster than motorcycles. The company‘s strategy is ready and offers digital inventory now. General merchandise includes motor clothes apparel and collectibles
HARLEY-DAVIDSON, INC. Motorcycle Shipments (UNITS) HARLEY-DAVIDSON Sportster Custom Touring 2001 50,814 118,303 65,344 234,461 186,915 47,546 234,461 2000 46,213 100,875 57,504 204,592 158,817 45,775 204,592 1999 41,870 87,806 47,511 177,817 135,614 41,573 177,817 1998 33,892 77,434 39,492 150,818 110,902 39,916 150,818 1997 31,453 70,724 30,108 132,285 96,216 36,069 132,285
Domestic International
BUELL Buell (exc. Blast)
6,436
5,043
7,767
6,334
4,415 10
Buell Blast
3,489 9,925
5,416 10,189
— 7,767
— 6,334
— 4,415
Figure 2 MARKETS Harley is the established leader of heavyweight motorcycles in the North American market, accounting for about 60% of the market share. The size of its market share provides an opportunity for Harley to gain dominance. Its customers are the most loyal of any other brand and its products have a great reputation. Foreign markets are growing very fast because customers there are obsessed with Harley's quality and culture providing a great opportunity for Harley to exploit. The main problem is Harley's limited production capability, putting customers on a waiting list for months. To avoid customers purchasing from the competition, careful strategic management took place. Strategies now at work include creating good customer ties, provide after sales service, build up customer loyalty, expand distribution network, and modify products to meet local customer needs. Strategies as mentioned have been weighted in the Competitive Profile Matrix (CPM) illustrated in Appendix A. The purpose of the CPM is for identification of a company‘s major competition and their particular strengths and weaknesses in relation to a sample firm‘s strategic position. It is very useful in addressing the question ?where do we focus?? Strategies involve the company‘s structure as well. This has meant going to a high-performance work organization, with remarkable leadership from its labor union. In manufacturing operations, self-directed work teams are the order of the day. Enterprisewide, Harley is now organized into three basic circles: a produce products group, a create demand group, and a provide support group. Everyone in the company belongs to one of these three.
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The 70‘s saw a decline in the overall market. A flood of imports from Japan and quality problems created major problems for the company. In the 80‘s, 13 members of Harley-Davidson management purchased the company from AMF and brought a return to quality and implemented new management and manufacturing techniques. HarleyDavidson was one of the first US companies to use just-in-time inventory policies, statistical processes and employee involvement programs. Even using governmental laws as part of your strategy is acceptable. For instance, in 1982, the company convinced the International Trade Commission (ITC) that the overabundance of imported Japanese bikes were a threat of injury. Additional tariffs were imposed on the imports for five years, giving the company a chance to revitalize its place in the market. It did this in just three years by re-tooling and streamlining its operations. It is most apparent the strategic management team had extensively researched the competition and implemented strategy to slow down growth. Immediately thereafter, the company practiced the policies formulated from evaluating its internal audit and external audit. No doubt many matrixes were developed and ready to put to work once the Japanese growth had been slowed. Internal factors best account for the motorcycle maker's movement from near death to double-digit growth for the last several years. You see a simplified, highperformance, organizational structure and a set of clear matrixes derived from one key goal: to be ready for launch at the right time.
Double-digit growth and being sold out of product are great (Harley's situation for the last several years), but they contain big risks. Foremost: despite the romance of the product, an ?I-want-it-now? American customer base might get tired of waiting. To
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reduce this threat adding production capacity was needed, which they've done (they opened their first new plant since the 1920s in Kansas City two years ago) but carries with it the possibility of having overcapacity if and when the market heads south.
EXTERNAL AUDIT (OPPORTUNITIES, THREATS)
CUSTOMERS Demographics are a useful tool in finding out what people are up to. In this case study, we would want to know who is buying Harley-Davidson motorcycles. Answers to these questions provide a clear focus on what group to intensify customer service efforts, what group offers potential penetration with products, how did past strategy fare and trends that will develop over periods of time which are most useful in forecasting.
The information gleaned from figure 3a points to the fastest growing segment as women, thereby representing an opportunity. Harley-Davidson‘s success in this market will require designing smaller, easier to handle, comfortable and good quality bikes to build up brand loyalty within this segment of the market.
Demographic Profile (1997 – 2001) 1997 GENDER Male Female MEDIAN AGE Years MEDIAN INCOME ($000's) Household 2001 PURCHASERS 93% 7% 1998 93% 7% 1999 91% 9% 2000 91% 9% 2001 91% 9%
44.6
44.4
44.6
45.6
45.6
74.1
73.6
73.8
77.7
78.3
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41% Owned Harley-Davidson® motorcycle previously 31% Coming off of competitive motorcycle 28% New to motorcycling or haven't owned a motorcycle for at least the past 5 years Figure 3a
Demographic Profile (1990-1995) Demographic 1990 Gender % Male Female Median Age Years Median Income Household 47.3 36.7 96% 40%
1991 95% 50% 38.5 50.5
1992 95% 50% 38.4 53.7 Figure 3b
1993 93% 70% 41.6 61.9
1994 93% 70% 42.1 65.2
1995 91% 90% 42.5 66.4
It is of interest to know Harley-Davidson has never focused on lower pricing that would cut the profit margin for the shareholders. Instead, the focus has been on quality product and superior customer service coupled with owning an American icon. The pricing strategy has been successful as figure3a, figure 3b indicates by the increase in household income each year for the customer. Higher income persons are most interested in purchasing this American legend. Cost is not influencing purchase. MARKETS In addition to all those motorcycles, Harley-Davidson sells $500 million worth of parts and accessories to its fanatic followers, its customers. Ken Ostermann, Harley‘s manager of electronic commerce and communications, figured that the company could sell even more if it opened an online store. However, the company first had to strike a balance between dealers and brand managers. The company agreed so as not to take away revenue from its dealerships, to forward the order to the selected by customer dealer. This
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way the dealer remains the focal point of the customer‘s buying experience and the company makes sure the Harley message is maintained in a consistent way. The e-shopping phenomenon was an opportunity to expand the Harley brand even further yet conscious of the important role dealer‘s play in the whole scheme of HarleyDavidson business. This opportunity is included in EFAS Matrix, Appendix B. Another opportunity appeared for the legendary motorcycle brand HarleyDavidson in 2000 to reclaim its heroic stature through the mass exposure as an official Olympic game provider. As a provider to both the Olympics and the Para-Olympics, the company secured a strong presence in the nationwide torch relay, giving the brand 16,000km of high profile exposure. The company supplied four specially designed Harley-Davidson police Road King motorcycles to transport police escorts with the relay, and some 60 motorcycles to be used during the Games to transport journalists' film for processing. Harley-Davidson Motor Company market development manager Adrian O'Donoughue said the company's aim was "primarily, in bringing back Harley-Davidson to the forefront of people's minds through the torch relay". He said the attention grabbing ability of the product itself was far more effective than a billboard in a cluttered environment. These types of opportunities are taken advantage of and capitalize on by intelligent strategic managers. They look for opportunities such as this and waste no time in securing. Continual research is necessary to dig out such opportunities thus requiring a satisfactory R & D budget as this case study. COMPETITION The marketing push comes as the Harley-Davidson brand faces serious challenges from the resurgence of performance bikes in the market especially from Asia. Even
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though this is represented as a threat on the EFAS Matrix, Appendix B, it can be viewed as a potential market. These bikes being introduced are new and un-tested in the market for quality, safety and design. Harley-Davidson may design a smaller bike, high performance, easy of use and saturate the American icon brand that is so desirable to foreign segments while maintaining good customer service and a chance to be a part of the Harley-Davidson family. One of the most recent threats comes from the European Community that will introduce the increased customs duties on several kinds of American goods. The European Community leadership sent the list of American goods, on which products are most likely to suffer additional tariffs, to all European Community members, which included very familiar trademarks such as Harley-Davidson bikes. Harley-Davidson will need to monitor the current events and appropriately apply strategic measures to reduce the cost of this threat.
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STRETEGIC ALTERNATIVES AND RECOMMENDATIONS
Managers always want to choose the alternative that capitalizes on Harley's strengths to reduce the effects of threats. Recommendations are as follows: ? The company should produce only heavyweight motorcycles, thereby focusing its R&D on producing safe, good quality products. ? The company is to guarantee a high resale value and provide good after sales service. ? Customers under 30 years of age are to be provided with safe, stylish, high quality products at reasonable prices, thereby increasing brand loyalty. ? Customers from 30 to 50 years of age are to be provided with high performance, safe products, building up Harley's brand loyalty that is considered the strongest, especially in the domestic market. ? Customers over 50 years of age are to be provided with comfortable, easy to handle bikes to increase their convenience. Foreign bikes are not designed this way and are expected to be outperformed by Harley.
?
The plan to focus on the domestic market with 60% emphasis and on the foreign market with 40% emphasis is both good and bad. It is a strength in the sense that international demand for Harley products are increasing and that would increase the company's revenues since it will expand its distribution network, provide after sales service, and appear there with an already established brand loyalty. It is a risk though to expand with 40% emphasis in the foreign markets because Harley
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is not strong in meeting consumer demand that is expected to grow even more and dissatisfy both domestic and foreign customers. Surely, Harley can solve this problem by getting loans, thereby expanding its plant capacity and meeting this increased demand. The future cash flows that will arise due to increased sales will be used to repay these loans and maintain the company's good credit rating.
SUMMARY
The case study has given an intuitive look into strategies at work. The basic tools illustrated in the following Appendixes will work for any company. The tools provide the areas of focus and capitalization. Harley-Davidson implemented changes in the ?90‘s to prepare for the future challenges and stay ahead of competition. They have targeted towards improving manufacturing and creating new products and services. Thus far, the strategies have been very successful and have built strong relationships with all their shareholders. They have used a very systemic approach during the developmental journey. Through the decades, Harley-Davidson motorcycles have had the ability to generate emotion. The excitement of racing, the peacefulness of a ride down a country lane, the pleasant symphony of a handful of bikes rumbling down Main Street, the exhilaration of switchbacks on a mountain road, but most of all, the camaraderie of the people who share the same love for Harley-Davidson motorcycles. The Brotherhood. The Sisterhood. The Family. It's time to come home.
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APPENDIX - A
Competitive Profile Matrix Harley Davidson Indian Trail CRITICAL SUCCESS FACTORS WEIGHT RATING SCORE Product Quality 3 Reputation 1 Management 2 Financial Position 1 Customer Loyalty 2 Global Expansion 1 Market Share 3 Production Efficiency 4 Union Relations 2 .10 .30 .20 .20 .07 .14 .10 .10 .20 .40 .05 .05 .10 .30 .07 .28 .03 .06 1.00 1.83 Harley-Davidson has superiority in several internal and external areas but is closely matched by competitor BMW. Indian Trail will take time to regain any customer base or positioning they had before going bankrupt and then re-emerging. 3.17 3.10 3 .09 2 .06 1 .07 3 .21 4 .40 4 .40 2 .10 3 .15 4 .80 3 .60 3 .30 2 .20 3 .21 4 .28 4 .80 4 .80 RATING SCORE RATING SCORE BMW
4
.40
4
.40
19
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APPENDIX – B
EFAS Matrix for Harley-Davidson
KEY EXTERNAL FACTORS
Opportunities 1. Customize products digitally 2. Penetration of new markets (younger age) 3. Foreign markets obsessed w/HD culture 4. European market expansion 5. Decrease in Japanese market share (bad service) 6. Higher prices force people to use credit more 7. Foreign bikes lack comfort, easy handling 8. Concentration of women segment 9. Online shopping has dramatically increased Threats 1. Trade regulations 2. Competition in heavyweight market 3. Lower prices 4. Taxes and tariffs imposed
WEIGHT
.10 .10 .08 .08 .08 .05 .07 .03 .05
RATING
3 4 4 3 3 3 2 1 2
WEIGHTED SCORE
.30 .40 .32 .24 .24 .15 .14 .03 .10
.10 .10 .06 .10 1.0
2 3 1 1
.20 .30 .06 .10 2.55
Analysis
Weighted score is over the average with 2.5 being average. Harley-Davidson has responded well to opportunities and threats at hand. The rating will help identify which areas Harley-Davidson must concentrate efforts for a complete overall coverage of the market. For instance, Harley-Davidson should step up the efforts to design new bikes that will appeal to the fastest growing segment in the market, women and must develop strategy to offset threats from trade tariffs.
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APPENDIX – C
IFAS Matrix for Harley-Davidson
KEY INTERNAL FACTORS
Strength
1. Digital technology for replacement parts 2. Motorcycle shipments strong 3. Brand loyalty 4. Excellent customer service 5. 60% market share 6. In-house financing available 7. Trade name recognizable worldwide 8. Reputation for quality 9. Licensing of its trademark 10 Employee relations good 11.15.7% sales growth
WEIGHT RATING WEIGHTED SCORE
0.05 0.04 0.08 0.05 0.07 0.09 0.09 0.09 0.06 0.05 0.06 2 3 2 4 4 3 2 4 3
3
2
0.1 0.12 0.16 0.2 0.28 0.27 0.18 0.36 0.18 0.15 0.12
Weaknesss
1. Production capacity 2. Lack of international facilities 3. Limited presence in Asian markets outside Japan 4. On-line shopping
0.06 0.08 0.06 0.07 1.00
3 2 1 3
0.18 0.16 0.06 0.21 2.73
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APPENDIX –D SFAS Matrix for Harley Davidson
STRENGTHS - S 1. Digital technology for replacement parts 2. Motorcycle shipments strong 3. Brand loyalty 4. Excellent customer service 5. 60% market share 6. In-house financing available 7. Trade name recognizable worldwide 8. Reputation for quality 9. Licensing of its trademark 10 Employee relations good 11.15.7% sales growth WEAKNESSES - W 1. Production capacity 2. Lack of international facilities 3. Limited presence in Asian markets outside Japan 4. On-line shopping
OPPORTUNITIES - O 1. Custom products digitally 2. Penetration of new markets (younger) 3. Foreign markets obsessed with HD culture 4. European market 5. Japanese lost market share (bad service) 6. Inflated prices, people using credit more 7. Foreign bikes lack comfort, ease of handling 8. Women fast growing market segment 9. Online shopping has dramatically increased
S O STRATEGIES W O STRATEGIES 1. Financial position and name to penetrate new 1. Expansion into the internet shopping (W4, O9, markets (S11, S7, O2, O8) O3) 2. Expand online shopping (S3, O1, O4, O5, O9) 3.Expand internationally (S3, S5, S7, S8, S11, O3, O4, O5, O7)
THREATS - T 1. Trade regulations 2. Competition in heavyweight market 3. Lower prices 4. Tariffs
S T STRATEGIES 1. Brand name recognition (S3, S4, S7, S8, T2) 2. Focus on quality, not prices (S3, S4, S8, T3)
W T STRATEGIES 1. Expand production capacity (W1, T3)
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APPENDIX – E
Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Net Sales Cost Of Goods Sold Gross Profit SG and A Expenses R and D Expenditures Depreciation and Amortization Income Before Depreciation and Amortization Interest Expense Investment Gains (Losses) Total Operating Expenses Non-Operating Income Other Income Income Before Tax Provision For Income Taxes Income After Tax Minority Interest Net Income Before Extra Items Extra Items Discontinued Operations Net Income
3,363.4 2,183.4 1,180.0 578.8 601.2 578.8 72.2 673.5 235.7 437.7 437.7 437.7
WorldScope data provided by Thomson Financial
2,906.4 1,915.5 990.8 513.0 477.8 513.0 70.8 548.6 200.8 347.7 347.7 347.7
2,452.9 1,617.3 835.7 447.5 388.2 447.5 32.6 420.8 153.6 267.2 267.2 267.2
2,064.0 1,373.3 690.7 357.1 333.6 357.1 2.6 336.2 122.7 213.5 213.5 213.5
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APPENDIX –F
Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee WISCONSIN 53208 Website
Phone: Fax:
Annual Report +1 414 342-4680 n/a
Harley-Davidson Incorporated (Harley). The Group's principal activities are classified under two business segments namely motorcycles and related products and financial services. The motorcycle and related products segment designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles and related parts. The standard and performance segments are served by the Group's Buell motorcycle line. The Group presently manufactures and sells 28 models of HarleyDavidson touring and custom heavyweight motorcycles. The financial service includes servicing wholesale inventory receivables and consumer retail installment contracts. The Group has operations in Europe, Japan, Canada and Germany. Motorcycles and related products accounted for 95% of 2001 revenues and financial services, 5%. Company at a Glance
Industry:
Recreational Products & Services
Employees: Fiscal Year-End:
8,650 12/31/2002
Per share data
Earnings (1 year):
1.62 26.73 $ 2.28 $ 847.35M $ 0.14 $ 6.52 n/a
Current P/E Ratio:
Cash Flow:
Cash (last quarter):
Annual Dividend:
Book Value:
EBITDA:
Management effectiveness
Return on Equity (1 year):
31.18% n/a n/a
Return on assets (1 year):
Return on Investment (1 year):
25
Valuation ratios
Price/Earnings (1 year):
26.73 6.85 19.15
Price/Book (1 year):
Price/Cash Flow (1 year):
Profitability
Gross Margin (1 year):
34.95% 18.75% 13.33%
Operating Margin (1 year):
Profit Margin (1 year):
M = Millions
B=Billions
Balance Sheet Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Cash Marketable Securities Receivables Inventories Raw Materials Work In Progress Finished Goods Notes Receivable Other Current Assets Total Current Assets Property, Plant, and Equipment, Gross Accumulated Depreciation Property, Plant, and Equipment, Net Intangibles Investment Advances To Subsidiaries Deferred Charges Deposits And Other Assets
439.4 196.0 118.8 181.1 656.4 73.4 1,665.3 891.8 891.8 49.7 132.4
419.7 98.3 191.9 530.9 56.4 1,297.3 754.1 754.1 54.3 96.6
183.4 101.7 168.6 495.3 949.0 681.7 681.7 55.4 71.0
165.2 113.4 155.6 410.8 845.0 627.8 627.8 51.2 76.9
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Other Non-Current Assets Total Non-Current Assets Total Assets Notes Payable Accounts Payable Current Long Term Debt Current Portion Capital Leases Accrued Expenses Income Taxes Other Current Liabilities Total Current Liabilities Mortgages Deferred Charges To Income Convertible Debt Long Term Debt Non-Current Portion Of Capital Leases Minority Interest (Liabilities) Other Long Term Liabilities Total Non-Current Liabilities Total Liabilities Preferred Stock Common Stock, Net Capital Surplus Retained Earnings Treasury Stock Other Equity Total Shareholder Equity Total Liabilities Shareholders Equity
379.3 1,453.2 3,118.5 194.7 217.1 304.4 716.1 17.8 380.0 248.3 646.1 1,362.2 3.2 359.2 1,833.3 425.5 -13.9 1,756.3 3,118.5
234.1 1,139.1 2,436.4 169.8 89.5 238.4 497.7 15.6 355.0 162.4 533.0 1,030.7 3.2 285.4 1,431.0 314.0 0.0 1,405.7 2,436.4
354.9 1,163.1 2,112.1 137.7 181.2 199.3 518.2 12.0 280.0 140.8 432.8 951.0 3.2 234.9 1,113.4 188.0 -2.4 1,161.1 2,112.1
319.4 1,075.2 1,920.2 122.7 146.7 199.1 468.5 2.3 280.0 139.5 421.8 890.3 1.6 212.0 873.2 57.1 0.3 1,029.9 1,920.2
APPENDIX - G
Cash Flow Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Net Income (Loss) Depreciation and Amortization Net Increase (Decrease) In Assets Liabilities
437.7 153.1 77.8
347.7 133.3 49.6
267.2 113.8 12.5
213.5 87.4 -2.9
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Other Adjustments, Net Net Operating Cash Flow Increase (Decrease) In Property, Plant, and Equipment Acquisition/Disposition Of Subsidiaries Or Other Business Cash Provided By (Used In) Discontinued Operations Increase (Decrease) In Investments Net Investing Cash Flow Other Cash Inflow (Outflow) From Financing Dividends Or Other Distributions Issuances (Purchases) Of Equity Security Issuances (Repayments) Of Debt Security Net Financing Cash Flow Effect Of Exchange Rates On Cash Net Change In Cash Or Equivalents Cash - Beginning Of Period Cash - End Of Period
88.7 757.3 -290.4 -1.9 -471.8 -772.0 -35.4 -82.7 34.4 19.7 419.7 439.4
WorldScope data provided by Thomson Financial
34.8 565.5 -203.6 151.4 -104.5 -171.0 -30.1 -111.4 -158.1 236.3 183.4 419.7
38.1 431.6 -165.8 -129.5 -299.6 -27.0 -121.2 -113.8 18.2 165.2 183.4
32.7 330.7 -182.8 -147.4 -340.2 -24.2 -4.0 27.1 17.7 147.5 165.2
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APPENDIX H Corporate Governance
Harley-Davidson, Inc. Board of Directors
Corporate governance is both an art and a science at Harley-Davidson. It‘s the science of attracting directors who reflect a deep knowledge of similar industries and a broad perspective of contemporary business issues and trends. And it‘s the art of blending those resources into a sharply honed management team. Harley-Davidson‘s Board of Directors is one of the company‘s strongest assets. It includes seven independent directors, all accomplished business leaders. As a group they represent diverse experience in brand marketing, corporate law, telecommunications, automotive and management consulting. The board also benefits from the expertise of a long-time Harley-Davidson distributor as well one former and one current company executive with collectively 40 years of tenure. The composition of the board provides a dynamic view from different perspectives: the rich heritage and mystique of the Harley-Davidson brand and the new challenges and opportunities that await the company.
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CORPORATE OFFICERS, HARLEY-DAVIDSON, INC. Jeffrey L. Bleustein Chairman and Chief Executive Officer James M. Brostowitz Vice President, Controller and Treasurer Gail A. Lione Vice President, General Counsel and Secretary James L. Ziemer Vice President and Chief Financial Officer
MOTOR COMPANY LEADERSHIP Jeffrey L. Bleustein Chief Executive Officer Garry S. Berryman Vice President, Purchasing Joanne M. Bischmann Vice President, Marketing James M. Brostowitz Vice President and Controller William B. Dannehl Vice President, General Manager, York Operations William G. Davidson Vice President, Styling Kathleen A. Demitros Vice President, Communications
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Karl M. Eberle Vice President, General Manager, Kansas City Operations Clyde Fessler Vice President, Business Development Jon R. Flickinger General Sales Manager, North America John D. Goll Vice President, Quality and Reliability John A. Hevey Vice President, General Manager Asia/Pacific and Latin American Regions Timothy K. Hoelter Vice President, International Trade and Regulatory Affairs Ronald M. Hutchinson Vice President, Parts, Accessories and Customer Service Michael D. Keefe Director, Harley Owners Group Brian P. Lies Vice President, General Merchandise Gail A. Lione Vice President and General Counsel James A. McCaslin Vice President, Continuous Improvement Steven R. Phillips General Manager, Tomahawk Operations John Russell Vice President, Managing Director Europe David J. Storm Vice President, Planning and Information Services W. Kenneth Sutton, Jr. Vice President, General Manager Powertrain Operations Earl K. Werner Vice President, Engineering Jerry G. Wilke Vice President
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EAGLEMARK FINANCIAL SERVICES LEADERSHIP Steven F. Deli Chairman and Chief Executive Officer Michael E. Sulentic Vice President and Chief Financial Officer Donna F. Zarcone President and Chief Operating Officer
BUELL MOTORCYCLE COMPANY LEADERSHIP Erik F. Buell Chairman and Chief Technical Officer Jerry G. Wilke President and Chief Operating Officer
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doc_830938012.docx
This PPT is a case study examines the Harley-Davidson phenomenon. From near bankruptcy to double-digit growth every year, how Harley-Davidson worked on strategic planning and development.
HARLEY DAVIDSON INC.
CASE STUDY ANAYLSIS
TABLE OF CONTENTS
Title Page…………………………………………………………………………………... Table of Contents…………………………………………………...……………………..2 List of Figures and Tables…………………………………………………………………3 Executive Summary……………………………………………………………………….4 Introduction…..……………………………………………………………………………6 Industry Analysis………………………………………………………………………….8 Mission Statement…………………………………………………………………………9 Internal Audit (Strengths, Weaknesses)……………...……………………………………9 Brand Loyalty………………………………………………………………………….9 Products………………………………………………………………………………..9 Markets…………..………………………………………………………………...…11 External Audit (Opportunities, Threats)…………………………………………………13 Customers………..…………………………..………………………………………13 Markets……………..…………………………………………………………..……14 Competition………….………………………………………………………………15 Strategic Alternatives and Recommendations…………………………...………………17 Summary…………………………………………………………………………………18 Appendixes………………………………………………………………………………… CPM –A……………………………………………………………………………….. EFAS – B………………………………………..……….……………………………. IFAS – C ……………………………………………………………………………… TOWS – D……………………………………………………………………………. Income Statement – E………………………………………………………………… Balance Sheet – F………………………………………………..……………………. Cash Flow – G…...……………………………………………………………………. Corporate Scoreboard – H………………..……………………………………………
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LIST OF FIGURES AND TABLES
Table 1 – Competitor Comparison….…..…………………………………………………8 Figure 2 – Motorcycle Shipments…….….………………………………………………10 Figure 3 – Customer Demographics…………………………………………………13, 14
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EXECUTIVE SUMMARY
This case study examines the Harley-Davidson phenomenon. From near bankruptcy to double-digit growth every year, Harley-Davidson has worked on strategic planning and development.? With the global economy growing, companies are looking for ways to improve their market share. 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. This case study will identify those strategies that have worked and brought the company and its shareholders success each year. Today, Harley-Davidson Inc., an employer of 8,100 workers, consists of HarleyDavidson Motor Company based in Milwaukee and Eagelmark Financial Services Inc. based in Chicago, Illinois. These are strategic business units are they are managed separately based on the fundamental differences in their operations, products and services. In addition, there are nearly 1,500 dealerships worldwide. Harley‘s commitment toward continuous improvement is exemplified in the supplemental financial statements, Appendix section. Harley‘s strategic objective is to continue to provide safe, high technology heavyweight bikes and keep customer satisfaction at high levels. These qualities vision more than doubled Harley-Davidson‘s market share and increased its brand loyalty. Harley-Davidson‘s products include: motorcycles, parts & accessories along with financing services. Three main geographic markets comprise the bulk of motorcycle sales: North America, Asia and Europe. Harley-Davidson‘s customers are comprised of both male and female with the female segment the fastest growing market at 5% yearly. Expansion into the European
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and especially Asian markets will be forthcoming. These new market opportunities will require new designs that are lighter, easier to use, comfortable and stylish. Motorcycles are no longer thought of just a mode of transportation. The Harley-Davidson motorcycle welcomes you into a family, a culture of the free and willing sprit. Future threats to prepare for include the increase in European trade tariffs on wellknown brands such as named, Harley-Davidson. Production plant expansion should shorten the wait time for manufacturing new bikes. This has been a weakness of HarleyDavidson for years. It adds to the mystique, but the risk of losing customers is also present. The latest financial reports found in the Appendix section confirm HarleyDavidson‘s successful strategies. Year 2001 sales at $3,363.4 (mil), a growth of 15.7% from previous period. Year 2001 net income at $437.7 (mil), a growth of 25.9%. HarleyDavidson has successfully captured 60% of the motorcycle market. The future at Harley-Davidson is expected to do very well and increase market share even more where penetration into the Asian and European market is expected. The 100-year anniversary is scheduled for August 2003 in Milwaukee, WI where approximately half a million people are participated in celebration. The American icon is very much alive and desired among people around the world. The Harley-Davidson tradition knows no boundaries but is a culture of its own. With that kind of brand recognition and strategic management, this company is expected to enjoy success another 100 years.
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HARLEY DAVIDSON INC.
Case study of an American icon and the successful strategies INTRODUCTION
Harley-Davidson Inc. at a Glance
Founded: Headquarters: 2001 Net Sales: 2001 Net Income: Business Units: Number of Employees: Number of Dealers: 1903 Milwaukee $3,363.4 million $437.7 million Harley-Davidson Motor Co., Eaglemark Financial Services Inc. 8,100 1,200 worldwide
Number of Motorcycles Produced per Year: 263,000 in 2002; targeting 289,000 by 2003
Perhaps more than any other 20th century product, the Harley-Davidson motorcycle is revered as an American icon - a symbol of free-spiritedness. While this gives Harley marketing advantages, it carries the responsibility of upholding the qualities that customers identify as the essence of Harley. Harley-Davidson is the only major US maker of motorcycles and the nation's #1 seller of heavyweight motorcycles who has held the largest share of the U.S. heavyweight motorcycle market since 1986. Besides its bikes, Harley-Davidson sells a licensed line of clothing and accessories with the company name and now offers financing. Also, gaining attention are the Harley-Davidson Cafes, located in various cities including New York City and Las Vegas. In addition, many of Harley-Davidson owners/riders are members of the Harley Owners Group better known as H.O.G., with more than 500,000 members nationwide. The demand for Harley-Davidson motorcycles continues to rise. Other motorcycle manufacturers have tried to compete with Harley-Davidson, but none have been able to match Harley-Davidson in terms of customer loyalty and sales. The dedication to its
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existing customers has created a loyalty that is desirable by many other companies. The case study will allow an in-depth look into what strategies have made the company so successful and what to expect in the future.
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INDUSTRY ANAYLSIS
The industry is this case study is the motorcycle industry consisting of five major manufacturers: American (Harley Davidson, Indian Motorcycle), and Japanese (Honda, Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany and some other Italian companies). Industry sales of motorcycles were shrinking in the early l990s because of the recession and the competition from computers and electronic products decreasing consumers' discretionary income. The sales of accessories and parts make up 36% of total retail sales and are a viable area for producers to explore because people want something to personalize their bikes. Previously, motorcycles were viewed as a cheap means of transportation. By 1992, they came to be viewed as a recreational, or a luxury item. This new perception of motorcycles led to the introduction of more expensive models with higher prices. This in turn created a new market for Harley-Davidson of consumer financing, one of the fastest growing service areas in the motorcycle industry. The table 1 comparison shows Harley Davidson continues to show strong growth in sales that increased by 15.7% over previous year whereas BMW gained massive sales in 2001, yet growth was only at 2.3% indicating their marketing may be reaching a peak.
2001 Sales 1-Yr. Sales 2001 Net Company (mil) Growth Inc. (mil) Harley Davidson $3,363.4 15.70% $437.7 BMW $34,071.0 2.30% $1,653.0 Indian Motorcycle $1,512.0 6.10% $91.4 Table 1 1-Yr. Net 1-Yr. Inc. 2001 Employee Growth Employees Growth 25.90% 8,100 5.20% 71.10% 97,275 3.90% 10.40% 3,550 -0.30%
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VISION AND MISSION
To treat customers and employees honestly and fairly. To provide a clean and a safe work environment. To manage our business efficiently and profitably. To understand that we exist in a changing marketplace with increased competition. To be supportive and well thought of in our community. And to remember that our business is more than the bottom line. We gotta have fun; enjoy working with each other and with our customers.
INTERNAL AUDIT (STRENGTHS, WEAKNESSES)
BRAND LOYALTY The Harley-Davidson corporation's ability to evangelize the Harley lifestyle without alienating a customer-base, which prides itself on being free-spirited and countercultural, has been a testament to its marketing shrewdness. "We're proud of our motorcycles, and we are committed to a lifelong relationship with our customers. That's why Harley-Davidson is much more than a machine. It's a way of life." Harley-Davidson's business design is based on long-lasting relationships not only with their customers but also with all their stakeholders. Harley-Davidson's mission to fulfill dreams extends beyond their customer; it is their goal to create mutually beneficial relationships with all their stakeholders - customers, employees, dealers, suppliers, investors, government and society. While the company holds 60% of the market, managers are by no means asleep at the wheel. Harley-Davidson upholds its reputation for quality and good service retaining the customer base and securing new customers to the brand as indicated in figure 3.
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PRODUCTS Harley Davidson produces only heavyweight motorcycles (with engine displacements of 750cc or greater) that are categorized into touring and cruiser motorcycles. Touring motorcycles are designed for long distance riding and feature many car like features (i.e., trunks), and provide Harley with the greatest profit margin. Cruisers are styled after early motorcycles and are the kind most often associated with Harley. They provide a very low profit margin because of their low prices but are used as a means to attract young customers. Strategic managers study demographics such as illustrated in figure 3 very carefully. Trends are identified and strategies for the next new product launch and market penetrations are readied. Implementation is crucial along with timing. For example, for year 2003 the company will produce special models in limited quantities for the 100-year anniversary. Not to be forgotten is the part and accessories (P&A) business, which has grown remarkably during the past years, and it is expected to grow slightly faster than motorcycles. The company‘s strategy is ready and offers digital inventory now. General merchandise includes motor clothes apparel and collectibles
HARLEY-DAVIDSON, INC. Motorcycle Shipments (UNITS) HARLEY-DAVIDSON Sportster Custom Touring 2001 50,814 118,303 65,344 234,461 186,915 47,546 234,461 2000 46,213 100,875 57,504 204,592 158,817 45,775 204,592 1999 41,870 87,806 47,511 177,817 135,614 41,573 177,817 1998 33,892 77,434 39,492 150,818 110,902 39,916 150,818 1997 31,453 70,724 30,108 132,285 96,216 36,069 132,285
Domestic International
BUELL Buell (exc. Blast)
6,436
5,043
7,767
6,334
4,415 10
Buell Blast
3,489 9,925
5,416 10,189
— 7,767
— 6,334
— 4,415
Figure 2 MARKETS Harley is the established leader of heavyweight motorcycles in the North American market, accounting for about 60% of the market share. The size of its market share provides an opportunity for Harley to gain dominance. Its customers are the most loyal of any other brand and its products have a great reputation. Foreign markets are growing very fast because customers there are obsessed with Harley's quality and culture providing a great opportunity for Harley to exploit. The main problem is Harley's limited production capability, putting customers on a waiting list for months. To avoid customers purchasing from the competition, careful strategic management took place. Strategies now at work include creating good customer ties, provide after sales service, build up customer loyalty, expand distribution network, and modify products to meet local customer needs. Strategies as mentioned have been weighted in the Competitive Profile Matrix (CPM) illustrated in Appendix A. The purpose of the CPM is for identification of a company‘s major competition and their particular strengths and weaknesses in relation to a sample firm‘s strategic position. It is very useful in addressing the question ?where do we focus?? Strategies involve the company‘s structure as well. This has meant going to a high-performance work organization, with remarkable leadership from its labor union. In manufacturing operations, self-directed work teams are the order of the day. Enterprisewide, Harley is now organized into three basic circles: a produce products group, a create demand group, and a provide support group. Everyone in the company belongs to one of these three.
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The 70‘s saw a decline in the overall market. A flood of imports from Japan and quality problems created major problems for the company. In the 80‘s, 13 members of Harley-Davidson management purchased the company from AMF and brought a return to quality and implemented new management and manufacturing techniques. HarleyDavidson was one of the first US companies to use just-in-time inventory policies, statistical processes and employee involvement programs. Even using governmental laws as part of your strategy is acceptable. For instance, in 1982, the company convinced the International Trade Commission (ITC) that the overabundance of imported Japanese bikes were a threat of injury. Additional tariffs were imposed on the imports for five years, giving the company a chance to revitalize its place in the market. It did this in just three years by re-tooling and streamlining its operations. It is most apparent the strategic management team had extensively researched the competition and implemented strategy to slow down growth. Immediately thereafter, the company practiced the policies formulated from evaluating its internal audit and external audit. No doubt many matrixes were developed and ready to put to work once the Japanese growth had been slowed. Internal factors best account for the motorcycle maker's movement from near death to double-digit growth for the last several years. You see a simplified, highperformance, organizational structure and a set of clear matrixes derived from one key goal: to be ready for launch at the right time.
Double-digit growth and being sold out of product are great (Harley's situation for the last several years), but they contain big risks. Foremost: despite the romance of the product, an ?I-want-it-now? American customer base might get tired of waiting. To
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reduce this threat adding production capacity was needed, which they've done (they opened their first new plant since the 1920s in Kansas City two years ago) but carries with it the possibility of having overcapacity if and when the market heads south.
EXTERNAL AUDIT (OPPORTUNITIES, THREATS)
CUSTOMERS Demographics are a useful tool in finding out what people are up to. In this case study, we would want to know who is buying Harley-Davidson motorcycles. Answers to these questions provide a clear focus on what group to intensify customer service efforts, what group offers potential penetration with products, how did past strategy fare and trends that will develop over periods of time which are most useful in forecasting.
The information gleaned from figure 3a points to the fastest growing segment as women, thereby representing an opportunity. Harley-Davidson‘s success in this market will require designing smaller, easier to handle, comfortable and good quality bikes to build up brand loyalty within this segment of the market.
Demographic Profile (1997 – 2001) 1997 GENDER Male Female MEDIAN AGE Years MEDIAN INCOME ($000's) Household 2001 PURCHASERS 93% 7% 1998 93% 7% 1999 91% 9% 2000 91% 9% 2001 91% 9%
44.6
44.4
44.6
45.6
45.6
74.1
73.6
73.8
77.7
78.3
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41% Owned Harley-Davidson® motorcycle previously 31% Coming off of competitive motorcycle 28% New to motorcycling or haven't owned a motorcycle for at least the past 5 years Figure 3a
Demographic Profile (1990-1995) Demographic 1990 Gender % Male Female Median Age Years Median Income Household 47.3 36.7 96% 40%
1991 95% 50% 38.5 50.5
1992 95% 50% 38.4 53.7 Figure 3b
1993 93% 70% 41.6 61.9
1994 93% 70% 42.1 65.2
1995 91% 90% 42.5 66.4
It is of interest to know Harley-Davidson has never focused on lower pricing that would cut the profit margin for the shareholders. Instead, the focus has been on quality product and superior customer service coupled with owning an American icon. The pricing strategy has been successful as figure3a, figure 3b indicates by the increase in household income each year for the customer. Higher income persons are most interested in purchasing this American legend. Cost is not influencing purchase. MARKETS In addition to all those motorcycles, Harley-Davidson sells $500 million worth of parts and accessories to its fanatic followers, its customers. Ken Ostermann, Harley‘s manager of electronic commerce and communications, figured that the company could sell even more if it opened an online store. However, the company first had to strike a balance between dealers and brand managers. The company agreed so as not to take away revenue from its dealerships, to forward the order to the selected by customer dealer. This
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way the dealer remains the focal point of the customer‘s buying experience and the company makes sure the Harley message is maintained in a consistent way. The e-shopping phenomenon was an opportunity to expand the Harley brand even further yet conscious of the important role dealer‘s play in the whole scheme of HarleyDavidson business. This opportunity is included in EFAS Matrix, Appendix B. Another opportunity appeared for the legendary motorcycle brand HarleyDavidson in 2000 to reclaim its heroic stature through the mass exposure as an official Olympic game provider. As a provider to both the Olympics and the Para-Olympics, the company secured a strong presence in the nationwide torch relay, giving the brand 16,000km of high profile exposure. The company supplied four specially designed Harley-Davidson police Road King motorcycles to transport police escorts with the relay, and some 60 motorcycles to be used during the Games to transport journalists' film for processing. Harley-Davidson Motor Company market development manager Adrian O'Donoughue said the company's aim was "primarily, in bringing back Harley-Davidson to the forefront of people's minds through the torch relay". He said the attention grabbing ability of the product itself was far more effective than a billboard in a cluttered environment. These types of opportunities are taken advantage of and capitalize on by intelligent strategic managers. They look for opportunities such as this and waste no time in securing. Continual research is necessary to dig out such opportunities thus requiring a satisfactory R & D budget as this case study. COMPETITION The marketing push comes as the Harley-Davidson brand faces serious challenges from the resurgence of performance bikes in the market especially from Asia. Even
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though this is represented as a threat on the EFAS Matrix, Appendix B, it can be viewed as a potential market. These bikes being introduced are new and un-tested in the market for quality, safety and design. Harley-Davidson may design a smaller bike, high performance, easy of use and saturate the American icon brand that is so desirable to foreign segments while maintaining good customer service and a chance to be a part of the Harley-Davidson family. One of the most recent threats comes from the European Community that will introduce the increased customs duties on several kinds of American goods. The European Community leadership sent the list of American goods, on which products are most likely to suffer additional tariffs, to all European Community members, which included very familiar trademarks such as Harley-Davidson bikes. Harley-Davidson will need to monitor the current events and appropriately apply strategic measures to reduce the cost of this threat.
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STRETEGIC ALTERNATIVES AND RECOMMENDATIONS
Managers always want to choose the alternative that capitalizes on Harley's strengths to reduce the effects of threats. Recommendations are as follows: ? The company should produce only heavyweight motorcycles, thereby focusing its R&D on producing safe, good quality products. ? The company is to guarantee a high resale value and provide good after sales service. ? Customers under 30 years of age are to be provided with safe, stylish, high quality products at reasonable prices, thereby increasing brand loyalty. ? Customers from 30 to 50 years of age are to be provided with high performance, safe products, building up Harley's brand loyalty that is considered the strongest, especially in the domestic market. ? Customers over 50 years of age are to be provided with comfortable, easy to handle bikes to increase their convenience. Foreign bikes are not designed this way and are expected to be outperformed by Harley.
?
The plan to focus on the domestic market with 60% emphasis and on the foreign market with 40% emphasis is both good and bad. It is a strength in the sense that international demand for Harley products are increasing and that would increase the company's revenues since it will expand its distribution network, provide after sales service, and appear there with an already established brand loyalty. It is a risk though to expand with 40% emphasis in the foreign markets because Harley
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is not strong in meeting consumer demand that is expected to grow even more and dissatisfy both domestic and foreign customers. Surely, Harley can solve this problem by getting loans, thereby expanding its plant capacity and meeting this increased demand. The future cash flows that will arise due to increased sales will be used to repay these loans and maintain the company's good credit rating.
SUMMARY
The case study has given an intuitive look into strategies at work. The basic tools illustrated in the following Appendixes will work for any company. The tools provide the areas of focus and capitalization. Harley-Davidson implemented changes in the ?90‘s to prepare for the future challenges and stay ahead of competition. They have targeted towards improving manufacturing and creating new products and services. Thus far, the strategies have been very successful and have built strong relationships with all their shareholders. They have used a very systemic approach during the developmental journey. Through the decades, Harley-Davidson motorcycles have had the ability to generate emotion. The excitement of racing, the peacefulness of a ride down a country lane, the pleasant symphony of a handful of bikes rumbling down Main Street, the exhilaration of switchbacks on a mountain road, but most of all, the camaraderie of the people who share the same love for Harley-Davidson motorcycles. The Brotherhood. The Sisterhood. The Family. It's time to come home.
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APPENDIX - A
Competitive Profile Matrix Harley Davidson Indian Trail CRITICAL SUCCESS FACTORS WEIGHT RATING SCORE Product Quality 3 Reputation 1 Management 2 Financial Position 1 Customer Loyalty 2 Global Expansion 1 Market Share 3 Production Efficiency 4 Union Relations 2 .10 .30 .20 .20 .07 .14 .10 .10 .20 .40 .05 .05 .10 .30 .07 .28 .03 .06 1.00 1.83 Harley-Davidson has superiority in several internal and external areas but is closely matched by competitor BMW. Indian Trail will take time to regain any customer base or positioning they had before going bankrupt and then re-emerging. 3.17 3.10 3 .09 2 .06 1 .07 3 .21 4 .40 4 .40 2 .10 3 .15 4 .80 3 .60 3 .30 2 .20 3 .21 4 .28 4 .80 4 .80 RATING SCORE RATING SCORE BMW
4
.40
4
.40
19
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APPENDIX – B
EFAS Matrix for Harley-Davidson
KEY EXTERNAL FACTORS
Opportunities 1. Customize products digitally 2. Penetration of new markets (younger age) 3. Foreign markets obsessed w/HD culture 4. European market expansion 5. Decrease in Japanese market share (bad service) 6. Higher prices force people to use credit more 7. Foreign bikes lack comfort, easy handling 8. Concentration of women segment 9. Online shopping has dramatically increased Threats 1. Trade regulations 2. Competition in heavyweight market 3. Lower prices 4. Taxes and tariffs imposed
WEIGHT
.10 .10 .08 .08 .08 .05 .07 .03 .05
RATING
3 4 4 3 3 3 2 1 2
WEIGHTED SCORE
.30 .40 .32 .24 .24 .15 .14 .03 .10
.10 .10 .06 .10 1.0
2 3 1 1
.20 .30 .06 .10 2.55
Analysis
Weighted score is over the average with 2.5 being average. Harley-Davidson has responded well to opportunities and threats at hand. The rating will help identify which areas Harley-Davidson must concentrate efforts for a complete overall coverage of the market. For instance, Harley-Davidson should step up the efforts to design new bikes that will appeal to the fastest growing segment in the market, women and must develop strategy to offset threats from trade tariffs.
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APPENDIX – C
IFAS Matrix for Harley-Davidson
KEY INTERNAL FACTORS
Strength
1. Digital technology for replacement parts 2. Motorcycle shipments strong 3. Brand loyalty 4. Excellent customer service 5. 60% market share 6. In-house financing available 7. Trade name recognizable worldwide 8. Reputation for quality 9. Licensing of its trademark 10 Employee relations good 11.15.7% sales growth
WEIGHT RATING WEIGHTED SCORE
0.05 0.04 0.08 0.05 0.07 0.09 0.09 0.09 0.06 0.05 0.06 2 3 2 4 4 3 2 4 3
3
2
0.1 0.12 0.16 0.2 0.28 0.27 0.18 0.36 0.18 0.15 0.12
Weaknesss
1. Production capacity 2. Lack of international facilities 3. Limited presence in Asian markets outside Japan 4. On-line shopping
0.06 0.08 0.06 0.07 1.00
3 2 1 3
0.18 0.16 0.06 0.21 2.73
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APPENDIX –D SFAS Matrix for Harley Davidson
STRENGTHS - S 1. Digital technology for replacement parts 2. Motorcycle shipments strong 3. Brand loyalty 4. Excellent customer service 5. 60% market share 6. In-house financing available 7. Trade name recognizable worldwide 8. Reputation for quality 9. Licensing of its trademark 10 Employee relations good 11.15.7% sales growth WEAKNESSES - W 1. Production capacity 2. Lack of international facilities 3. Limited presence in Asian markets outside Japan 4. On-line shopping
OPPORTUNITIES - O 1. Custom products digitally 2. Penetration of new markets (younger) 3. Foreign markets obsessed with HD culture 4. European market 5. Japanese lost market share (bad service) 6. Inflated prices, people using credit more 7. Foreign bikes lack comfort, ease of handling 8. Women fast growing market segment 9. Online shopping has dramatically increased
S O STRATEGIES W O STRATEGIES 1. Financial position and name to penetrate new 1. Expansion into the internet shopping (W4, O9, markets (S11, S7, O2, O8) O3) 2. Expand online shopping (S3, O1, O4, O5, O9) 3.Expand internationally (S3, S5, S7, S8, S11, O3, O4, O5, O7)
THREATS - T 1. Trade regulations 2. Competition in heavyweight market 3. Lower prices 4. Tariffs
S T STRATEGIES 1. Brand name recognition (S3, S4, S7, S8, T2) 2. Focus on quality, not prices (S3, S4, S8, T3)
W T STRATEGIES 1. Expand production capacity (W1, T3)
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APPENDIX – E
Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Net Sales Cost Of Goods Sold Gross Profit SG and A Expenses R and D Expenditures Depreciation and Amortization Income Before Depreciation and Amortization Interest Expense Investment Gains (Losses) Total Operating Expenses Non-Operating Income Other Income Income Before Tax Provision For Income Taxes Income After Tax Minority Interest Net Income Before Extra Items Extra Items Discontinued Operations Net Income
3,363.4 2,183.4 1,180.0 578.8 601.2 578.8 72.2 673.5 235.7 437.7 437.7 437.7
WorldScope data provided by Thomson Financial
2,906.4 1,915.5 990.8 513.0 477.8 513.0 70.8 548.6 200.8 347.7 347.7 347.7
2,452.9 1,617.3 835.7 447.5 388.2 447.5 32.6 420.8 153.6 267.2 267.2 267.2
2,064.0 1,373.3 690.7 357.1 333.6 357.1 2.6 336.2 122.7 213.5 213.5 213.5
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APPENDIX –F
Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee WISCONSIN 53208 Website
Phone: Fax:
Annual Report +1 414 342-4680 n/a
Harley-Davidson Incorporated (Harley). The Group's principal activities are classified under two business segments namely motorcycles and related products and financial services. The motorcycle and related products segment designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles and related parts. The standard and performance segments are served by the Group's Buell motorcycle line. The Group presently manufactures and sells 28 models of HarleyDavidson touring and custom heavyweight motorcycles. The financial service includes servicing wholesale inventory receivables and consumer retail installment contracts. The Group has operations in Europe, Japan, Canada and Germany. Motorcycles and related products accounted for 95% of 2001 revenues and financial services, 5%. Company at a Glance
Industry:
Recreational Products & Services
Employees: Fiscal Year-End:
8,650 12/31/2002
Per share data
Earnings (1 year):
1.62 26.73 $ 2.28 $ 847.35M $ 0.14 $ 6.52 n/a
Current P/E Ratio:
Cash Flow:
Cash (last quarter):
Annual Dividend:
Book Value:
EBITDA:
Management effectiveness
Return on Equity (1 year):
31.18% n/a n/a
Return on assets (1 year):
Return on Investment (1 year):
25
Valuation ratios
Price/Earnings (1 year):
26.73 6.85 19.15
Price/Book (1 year):
Price/Cash Flow (1 year):
Profitability
Gross Margin (1 year):
34.95% 18.75% 13.33%
Operating Margin (1 year):
Profit Margin (1 year):
M = Millions
B=Billions
Balance Sheet Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Cash Marketable Securities Receivables Inventories Raw Materials Work In Progress Finished Goods Notes Receivable Other Current Assets Total Current Assets Property, Plant, and Equipment, Gross Accumulated Depreciation Property, Plant, and Equipment, Net Intangibles Investment Advances To Subsidiaries Deferred Charges Deposits And Other Assets
439.4 196.0 118.8 181.1 656.4 73.4 1,665.3 891.8 891.8 49.7 132.4
419.7 98.3 191.9 530.9 56.4 1,297.3 754.1 754.1 54.3 96.6
183.4 101.7 168.6 495.3 949.0 681.7 681.7 55.4 71.0
165.2 113.4 155.6 410.8 845.0 627.8 627.8 51.2 76.9
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Other Non-Current Assets Total Non-Current Assets Total Assets Notes Payable Accounts Payable Current Long Term Debt Current Portion Capital Leases Accrued Expenses Income Taxes Other Current Liabilities Total Current Liabilities Mortgages Deferred Charges To Income Convertible Debt Long Term Debt Non-Current Portion Of Capital Leases Minority Interest (Liabilities) Other Long Term Liabilities Total Non-Current Liabilities Total Liabilities Preferred Stock Common Stock, Net Capital Surplus Retained Earnings Treasury Stock Other Equity Total Shareholder Equity Total Liabilities Shareholders Equity
379.3 1,453.2 3,118.5 194.7 217.1 304.4 716.1 17.8 380.0 248.3 646.1 1,362.2 3.2 359.2 1,833.3 425.5 -13.9 1,756.3 3,118.5
234.1 1,139.1 2,436.4 169.8 89.5 238.4 497.7 15.6 355.0 162.4 533.0 1,030.7 3.2 285.4 1,431.0 314.0 0.0 1,405.7 2,436.4
354.9 1,163.1 2,112.1 137.7 181.2 199.3 518.2 12.0 280.0 140.8 432.8 951.0 3.2 234.9 1,113.4 188.0 -2.4 1,161.1 2,112.1
319.4 1,075.2 1,920.2 122.7 146.7 199.1 468.5 2.3 280.0 139.5 421.8 890.3 1.6 212.0 873.2 57.1 0.3 1,029.9 1,920.2
APPENDIX - G
Cash Flow Annual Financials for Harley-Davidson, Inc.
All dollar amounts in million except per share amounts. 2001 12/31/2001 2000 12/31/2000
Fiscal Year-End:12/31
1999 12/31/1999 1998 12/31/1998
Net Income (Loss) Depreciation and Amortization Net Increase (Decrease) In Assets Liabilities
437.7 153.1 77.8
347.7 133.3 49.6
267.2 113.8 12.5
213.5 87.4 -2.9
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Other Adjustments, Net Net Operating Cash Flow Increase (Decrease) In Property, Plant, and Equipment Acquisition/Disposition Of Subsidiaries Or Other Business Cash Provided By (Used In) Discontinued Operations Increase (Decrease) In Investments Net Investing Cash Flow Other Cash Inflow (Outflow) From Financing Dividends Or Other Distributions Issuances (Purchases) Of Equity Security Issuances (Repayments) Of Debt Security Net Financing Cash Flow Effect Of Exchange Rates On Cash Net Change In Cash Or Equivalents Cash - Beginning Of Period Cash - End Of Period
88.7 757.3 -290.4 -1.9 -471.8 -772.0 -35.4 -82.7 34.4 19.7 419.7 439.4
WorldScope data provided by Thomson Financial
34.8 565.5 -203.6 151.4 -104.5 -171.0 -30.1 -111.4 -158.1 236.3 183.4 419.7
38.1 431.6 -165.8 -129.5 -299.6 -27.0 -121.2 -113.8 18.2 165.2 183.4
32.7 330.7 -182.8 -147.4 -340.2 -24.2 -4.0 27.1 17.7 147.5 165.2
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APPENDIX H Corporate Governance
Harley-Davidson, Inc. Board of Directors
Corporate governance is both an art and a science at Harley-Davidson. It‘s the science of attracting directors who reflect a deep knowledge of similar industries and a broad perspective of contemporary business issues and trends. And it‘s the art of blending those resources into a sharply honed management team. Harley-Davidson‘s Board of Directors is one of the company‘s strongest assets. It includes seven independent directors, all accomplished business leaders. As a group they represent diverse experience in brand marketing, corporate law, telecommunications, automotive and management consulting. The board also benefits from the expertise of a long-time Harley-Davidson distributor as well one former and one current company executive with collectively 40 years of tenure. The composition of the board provides a dynamic view from different perspectives: the rich heritage and mystique of the Harley-Davidson brand and the new challenges and opportunities that await the company.
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CORPORATE OFFICERS, HARLEY-DAVIDSON, INC. Jeffrey L. Bleustein Chairman and Chief Executive Officer James M. Brostowitz Vice President, Controller and Treasurer Gail A. Lione Vice President, General Counsel and Secretary James L. Ziemer Vice President and Chief Financial Officer
MOTOR COMPANY LEADERSHIP Jeffrey L. Bleustein Chief Executive Officer Garry S. Berryman Vice President, Purchasing Joanne M. Bischmann Vice President, Marketing James M. Brostowitz Vice President and Controller William B. Dannehl Vice President, General Manager, York Operations William G. Davidson Vice President, Styling Kathleen A. Demitros Vice President, Communications
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Karl M. Eberle Vice President, General Manager, Kansas City Operations Clyde Fessler Vice President, Business Development Jon R. Flickinger General Sales Manager, North America John D. Goll Vice President, Quality and Reliability John A. Hevey Vice President, General Manager Asia/Pacific and Latin American Regions Timothy K. Hoelter Vice President, International Trade and Regulatory Affairs Ronald M. Hutchinson Vice President, Parts, Accessories and Customer Service Michael D. Keefe Director, Harley Owners Group Brian P. Lies Vice President, General Merchandise Gail A. Lione Vice President and General Counsel James A. McCaslin Vice President, Continuous Improvement Steven R. Phillips General Manager, Tomahawk Operations John Russell Vice President, Managing Director Europe David J. Storm Vice President, Planning and Information Services W. Kenneth Sutton, Jr. Vice President, General Manager Powertrain Operations Earl K. Werner Vice President, Engineering Jerry G. Wilke Vice President
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EAGLEMARK FINANCIAL SERVICES LEADERSHIP Steven F. Deli Chairman and Chief Executive Officer Michael E. Sulentic Vice President and Chief Financial Officer Donna F. Zarcone President and Chief Operating Officer
BUELL MOTORCYCLE COMPANY LEADERSHIP Erik F. Buell Chairman and Chief Technical Officer Jerry G. Wilke President and Chief Operating Officer
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