Harley Davidson Inc. 2008 Case Study: Thriving Through Recession
Ahsan Khan Roll No. 02 rd
MBA - 3 Semester
HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Summary of Case Study: Harley Davidson (Thriving Through Recession)
The key consideration points which I observe in the introduction and history of Harley Davidson which include hierarchal changing and diversification in their plant are extracted as:
Harley Davidson Inc. Founded in 1903, Harley Davidson is a modern success story of a company that turns it self around by emphasizing quality manufacturing and image marketing. After gaining its control of the company from AMF in a leveraged buy out in 1981, the management of Harley Davidson introduced Just in Time manufacturing strategy.
Encourage by the high market demand for the Harley Davidson bikes between the two decades of 80s and 90s, competitors increasingly challenged Harley’s strong position in market in wonderful heavy bike.
Harley adopts strategies to expand its demand of products, for this they acquired one of the sports motorcycle company in 1993 which is name “Buell Motorcycle Company”.
For attempting diversification of product other than motorcycle into recreational vehicles with the purchase of holiday Rambler was reversed in 1996 with the divestment of this business unit. Worrying that the baby-boomer target market for their heavy weight motor cycles was aging, management decided to introduce VRod in 2001. This was a low slung, high powered motor cycle meant to appeal to a youth market that was interested in riding “Crotch Rockets”.
After consistently growing through 90s era sales shows sign of slowing down as baby boomers continued to age. Safety was also an issue, given that riders over age 40 accounted for 40 percent of all fatalities.
For the first time in history the profit was declined in 2007 – 2008.
After President James Ziemer reviewed 2007 financial results, he realized that 2008 would be challenging year for them given the pending recession.
Analyst and strategist also wondering that how the company would be affected in this deep recession. How Harley Davidson does continues to grow at its past rate.
HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Harley Davidson’s Mission The Mission statement of the Harley Davidson is, “We fulfill the dreams through the experience of Motorcycling by providing to motorcyclists and to the general public as expanding line of motorcycles, branded products and services in the selected market segment”.
Harley Davidson’s Objectives The objectives of the Company are:
To increase sales and earn profit.
To provide great motorcycles.
To enhance the Harley’s life style experience.
To continue providing an excellent financial performance.
To increase production capacity.
To expand and strengthen company’s distribution network.
To expand globally.
Policies of Harley Davidson The policies of Harley Davidson are:
Improving strategic alliance with suppliers, reducing cost and implementing technology.
Promotion from within.
Encouraging employees to focus on value added activities,
Continuous educating their employees.
Enhancing Harley Davidson experience through H.O.G.
Giving back to community through charities.
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HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Current strategies of Harley Davidson The current strategies adopted by the Harley Davidson are:
Focus on cost and material.
Growth through increase international presence.
Manufacturing strategy are increasing capacity, quality, flexibility and decrease cost of production.
To increase Harley Davidson financial services segments participation with European dealers.
Growth of new millennium bikes through V-rod and acquisition of Buell. Growth of new sports bikes attracts young customers.
Ground breaking of Harley Davidson museum in June, 2006.
Current Performance of Harley Davidson The performance of Harley Davidson is:
Motorcycles shipments were decline in 20016 their shipments are 3, 49,196 units while in 2007 there are 3, 30,619 units.
European market share grow up by 9.6 percent.
Dominate heavy weight bikes they have market share of about 49.4 percent.
In 2007 their net sales down by 1.2 percent while profit also decline by 10.4 percent from last year.
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HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
EXTERNAL ENVIRONMENT The external environment plays a vital role on any company’s business development. The external environment related to Harley Davidson is discussed below:
Economy
Low interest rates
Domestic recession threatened in 2007
Fuel efficiency of motorcycles with rising fuel prices
Technology
Technological advances pose more efficiency for industry.
World wide protection by patents
High cost technology
Socio-cultural
Women riders are an undeveloped market
Baby boomers generation is Harley’s industry target markets
Younger buyers
Political & Legal
Tighter government regulations
Steel imports tariffs from European Union
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HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Task Environment In task environment we distribute it into opportunities and threats. First we discuss the opportunities then on threats.
Opportunities
Increase expansion will introduce Harley Davidson to new markets and increase their international market share.
Custom / Touring motorcycles are expensive but have high sales and high profit margin.
Advertising through licensing agreements and cafes
Threats
Threat of substitute include motor vehicles and mopeds, scooters and bicycles
Unionization and Wage control
Bargaining power of buyers higher due to exhaustion of backlog and high inventory and dealers
Highly competitive global and domestic markets
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HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
INTERNAL ENVIRONMENT Internal environment also affect the companies strength and growth. Now we discuss internal environment of Harley Davidson.
Corporate Structure
To business segments which are motorcycle and its related products
Financial services - Harley Davidson financial services
Decentralized decision making
Companies owns Buell motor cycle companies, Buell motorcycles are high performance motorcycles
Stage Three Corporation
Corporate Culture
Commitment to quality
Commitment to employees
Commitment to customers
Commitment to H.O.Gs
Commitment to partnership with venders
Marketing
Resale of product higher than competitors
Introduction of sleeker, 110 HP V-Rod aimed to young buyers in 2001
Some older models selling at a lower expected price
One hundred th anniversary celebration ride was a success
Licensing and Cafes are most visible brand building tools
Harley Davidson trademark was highly recognizable
H.O.Gs promotes Harley through rallies and events, dealer promotions and direct advertising 6
HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Website also easy to use and gives complete information of company
Strong brand loyalty about 92% repurchase rate
Alliance with Ford Motor Company
E-Commerce growing since 2000
Buell’s appeal younger buyer to their bikes and after acquiring it by Harley, the overall market share goes high
Finance
Supply demand balance which improves over 2002 to 2004 era
Return on equity has remained relatively constant at not less than 20% since 1994
Harley Davidson financial services generated income from continuing operation of $960 million during 2005
International sales and advanced 2%. The largest international markets in Europe, Japan and Canada
Earnings grew up from $417 million in 2001 to $960 million in 2005, growth was fairly steady and strong
47.8% and 8.9% European markets shares during 2005
Research and Development
Research and development expenditure of $178.5 million, 170.7 million and 50.3 million in 2005, 2004 and 2003 respectively
Product R&D focused on quality and reliability
Develop the V-Rod the fastest of any bike Harley Davidson has ever built
Logistics & Operations
Just in Time (JIT) manufacturing strategy
Statistical process control
Strong relations with vendors
Value added services also offered by Harley Davidson to their deals 7
HARLEY DAVIDSON
[THRIVING THROUGH RECESSION]
Joint venture with Porsche producing power train components, strategic alliance with Ford motors.
Human Resource Management
Over 9000 employees in their product lines
Motor cycle related segmented employees
In financial services segment having 550 employees with no union
Heavy community involvement
Around 50 percent of Harley Davidson employees ride Harley bikes
RECOMMENDATIONS Some recommendations according to my observation to Harley Davidson are:
Expansion to other geographical locations to gain more market share
Beneficial licensing agreements which favors their policies
Consolidate international operations in an attempt to gain more efficiency than prior to further global expansion
Maintains current size and sales in order to decrease inventory at dealerships
Review all cost so that profit can be made
Consider special sales incentives. Do a cost/ benefit analysis to ascertain the profits will not badly effected
Looks like it will be a world recession so expect sales which generates profits to decrease again, just focus on the rendering cost.
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