Strategic Management Report: Harley Davidson Case

Strategic Management Report: Harley Davidson Case

Executive Summary

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Harley Davidson is an American motorcycle manufacturing company. The company has long manufactured motorcycles that are in line with American culture. This paper reviewed the back ground of Harley–Davidson Company and how the how the company had evolved since its inception. The company had been faced with tough conditions some of which it had been able to counter and some of them have continued to affect the life of the company to date. The objective of this study is to review determine the difficulties that have faced the company as well as the ways in which the company has been able to get out of these situations (Amason, 2011).

This study also seeks to analyze the industry in which the company operates. The industry was competitive and the company had to have deep rooted strategies that led it to not only survive, but also to gain market share in that competitive market. The study was also aimed at establishing the major players in the industry who were Harley’s competitors and the methods that the competitors used to also gain market share for their products. The most important item in a business is its product. The study also shows the different kinds of products that the company offered and how different they were from those of its competitors (Amason, 2011).

The paper also analyzed the Harley Company by the SWOT analysis. It sought to establish the strengths and weakness of the company as well as determining the opportunities and threats that could impact on the future of the company. The paper also reviewed the financial condition of the company and found that the company was experiencing unhealthy financial position partly because of the financial crisis experienced during the time under study. Finally, the study recommends several strategies that the company needs to put in place in the next five years in order to realize more growth and to deal with the stiff competition (Amason, 2011).

 

 

Introduction

Harley Davidson Company was founded in 1903 by Davidson brothers and William Harley. The Harley model was first developed at a shed in the Davidson family and had an engine with three horse power. The Harley Company modified its motor bike in 1909 by introducing a two cylinder engine feature the deep sound that is associated with Harley motor cycles up-to-date. The postwar duration led to the change of culture of the youth and affluence in society consequently leading to growth in demand for Harley motorcycles (Amason, 2011). However, the demand was too large for Harley to satisfy and therefore the demand was complemented by imports from Britain and Japan.

Immediately after the post war era, the company had gained some benefits from the rebirth of motorcycling as a leisure activity but the company found itself in the midst of competition from Honda of Japan after the Japanese company introduced a four cylinder engine motorcycle in 1969. In this same year, Harley company was acquired by AMF a move that saw production capacity of units per year increase exponentially a move that led to disastrous quality problems resulting to heavy financial losses and a heavy loss in terms of market leadership of heavyweight motor cycle (Amason, 2011).

In 1981, the senior managers of Harley recommended a buyout of AMF’s Harley subsidiary and Harley Davidson came to be an independent firm once again but it was heavily indebted. To make the situation worse, there was a recession and escalating interest rates. This led to fall in sales of the companies motorcycles leading to heavy losses where by 1982, the company had lost a total of $60million and the company survived only due to temporary protection from Japanese imports and cutting their costs drastically (Amason, 2011).

Industrial Analysis

The motorcycle industry was not so much competitive that Harley would be unable to survive in the U.S. but it faced strong competition in international markets. The heavy weight market segment of motorcycles was rapidly growing between 1990 and 2007. North America was the largest market for heavyweight motorcycles and Harley was a market leader in this region accounting for nearly half of all the bikes sold in North America. North America was the biggest market in terms of heavy weight motor bikes accounting for 56% of heavy weight bikes sales in the world (Amason, 2011).

Harley Company was unable to be the leader in overseas market but it was market leader in Japan followed by Honda but in Europe; it lagged behind its major competitors i.e. Honda of Japan and BMW. Other competitors of Harley motorbikes were Suzuki, triumph, Ducati, and Yamaha. The heavyweight market of motorcycles was divided into three segments the first one was cruiser motorcycles. These were large, low riding and noisy motorcycles that had large displacement engines and upright riding position. These types of motorbikes were designed for customers who were either interested in speed or comfort (Amason, 2011).

It was mostly used by urban people in congested cities such as New York and Paris. This motorcycle was typically meant for transportation but it was typically used as stylish motor cycles and represented well over half of the United States heavy motorbikes. Harley’s competitors in this market segment assumed traditional models of Harley motorbikes. The second segment was touring motorcycles. This segment represented cruisers or long distance riding. Because of its features for long distance cruising, the motorcycles were fitted with luxury fittings such audio systems, heaters and two-way intercoms. Although Harley led in this segment in terms of image and style, its competitors such as BMW and Honda made their motorcycles with greater comfort and smoothness (Amason, 2011).

The third motorcycle segment was performance motorcycles. This segment was meant for racing. Because of their target function, they were built with high technology, high revving engine and emphasized on speed. This was the most important in Asian pacific and Europe markets which represented 65% and 62% respectively. this segmented was dominated by Japanese companies. Harley entered into this market in 1993 with Buell motorcycles which it fully bought in 1998. The segment had minimum concessions as opposed to comfort. The most important feature with this segment was speed and stability due t9o its function. Unlike other motorcycle companies, Harley was not just a heavy weight motorcycle producing company; it produced super-heavy weight motorcycles (Amason, 2011).

Harley-Davidson Brand

The greatest asset of Harley-Davidson Company was its image. The management acted in a way that would protect the company’s image to its customers and other stakeholders. The famed spread eagle did not only represent one of the oldest motorcycle brands but also the entire lifestyle it represented. Harley brand had a robust relationship with American culture. It symbolized freedom; individuality and adventure which are some of the characteristics associated with American lifestyle (Amason, 2011). The company represented American tradition of manufacturing and engineering it being the only surviving motor cycle company surviving since its inception.

The protection and the value of the company were not just meant for its marketing, but also for improving the relationship between the company and its consumers. The company had a philosophy that it did not only sell motorcycles but it also sold experience. It also had high value for its customers. To improve the company’s image, all employees including the CEO were, involved in many charity events and took an active in ac6tivities of the company. The company’s concern for its company could be summarized in a single phrase “we ride with you”. The royalty of Harley Motorcycle Company was manifested in the 1980s when the company was repurchased and the products that are ever improved (Amason, 2011).

The Products

Widening market appeal led to the company having some major implications for product policy. During the AMF years, the company experienced a disastrous foray in small bikes and ever since the company has realized that its competitive advantage is making super-heavy weight motorcycles. A v-twin engine was Harley’s distinctive feature since its inception in 1909. Harley’s motorcycle frames, fuel tanks, handle bars represented traditional designs. This is one in which the company follows the culture of Americans. Its small size and its inability to share R & D across bikes and cars contributed to the company’s inability to improve on its technology and to invest on new products. This resulted in the company being left behind in terms of new technologies in motorcycle manufacturing by its competitors (Amason, 2011).

Much of the technology of Harley’s motor cycle was old school. The engine of the company’s motorcycles represented the backwardness of the company. The company continued to use its two valve cylinder engine even after Japanese Honda had long introduced a multi-valve per cylinder. Despite these facts, Harley engaged in constant upgrading especially on its engines aiming at improving power delivery. It also engaged in improving its automotive technology by indulging in alliances with other companies like ford, Porsche AG, and Gemini Racing Technologies. Although the company lagged behind in technology, it was actively focused on development of new products (Grant, 2010).

By 2009, the offered more motorcycles models and this was assisted by expansion of the company’s product development center and inception of Prototyping lab. Most of product developments of Harley were focused on style and new designs and improving engineering modes. However, the company improved on their technology significantly between 2000 and 2008. The improvement in technology was shown by the company’s introduction of V-rod model in 2001. This was a liquid-cooled engine. The introduction of the Buell also provided a broader scope for Harley’s engineers. In 2006 the company discovered another new engine the twin cam 96 that featured a gearbox with six-speed. In the same year, Ulysses was the first motorcycle that was meant for adventure (Grant, 2010).

The strategy behind Harley’s product was to improve its customization for its customers. The company envisioned that every Harley’s motorcycle rider would own a customized motorbike. The objective was to offer a wide customization while dealing with product standardization on its products. One of the difficulties that the company faced was balancing economic scales and product differentiation. The company also purchased Buell Company which helped to improve its market in the U.S and led to the company increasing its market share in Europe where sports motorbikes were in higher demand (Grant, 2010).

Before owning fully the Buell, Harley-Davidson concentrated on manufacturing super-heavyweight motorcycles, after making the first single cylinder motor bike that was lowly priced, the company ventured in middleweight products and was a stepping stone for the company. The company had initially concentrated on product improvement since 1970 but its growth was not significant, but after acquiring Buell, it experienced significant growth (Grant, 2010).

SWOT Analysis

Strengths

One of the greatest strength of the company is its focus on American culture. This makes the company to have a wider market share in America because American customers feel that the company has recognized their well being making to feeling attracted to the company. The company has also gained good reputation. The company recognizes its reputation as the most valuable asset and it work towards protecting and improving it. The other strength was the good relationship of people with management. Since the Harley’s management was found in buyouts, the company has continued to enhance the relationship between the employees and management and thereby increasing efficiency in the in the operations of the company (Grant, 2010).

Weakness

The company was experiencing high costs of production. Although the company employed the Japanese just in time model in their production, the decisions made by the company to manufacture customized motorcycles could not be consistent with the model. This led the company to incur high costs in manufacturing customized products. The other major weakness was the use of old school technology in manufacturing motorcycles. This led to obsolescence in their motorcycles and people preferred the models that were produced in the latest design and technology. The company’s small size was another competitive disadvantage since it was unable to invest in the newest technology (Grant, 2010). The premium for Harley-Davidson motorcycles was very high and this made low income earners unable to afford the company’s products.

Opportunities

Since the company gain full ownership of the Buell Company, it has realized growth in terms of capturing market of younger people. It is inferred that the young generation wanted motorbikes that would differentiate them with the older members of the society. Market opportunities lie on younger generation. Since Harley was not a market leader in the Europe, the introduction of sport motorbike saw the company gain a significant market. Since Europe was the second largest market for heavyweight motorcycles, the opportunities lay in this market (Grant, 2010). The modification of the existing models to fit European style and market would lead Harley to increase market share in Europe.

By placing dealers in various international joints, the company has an opportunity to increase its sales through capturing new markets in those regions. Some regions are potential markets that have not been tapped and therefore, the company stands a chance of acquiring new markets in these places. An opportunity lies on production of lower capacity motorbikes. This is shown by the making of a single cylinder 490 cc engine which responded remarkably in the market (Grant, 2010).

Threats

Harley’s philosophy was to offer experience to its customers. The more the company introduced more products in the market, the more it faced competition from other motorcycle manufacturers. Other companies could imitate the Harley’s products and offer them with low prices which could lead to the company to experiencing great losses due to reduced market share. Customization of products would result to increase in costs of production resulting into increase in prices of the commodities while Japan’s just in time and lean manufacturing processes would lead to reduction of costs of production and wastes. This would lead to reduction in market share for the Harley’s motorcycles (Grant, 2010).

Factors That Affect the Company Currently and Into the Future

The company has all along acted in a manner that it protects the company’s image. This is a good strategy for brand building and it builds a sense of belonging to the company by American residents and customers across the board. The company has also embraced manufacturing motorbikes that coincide with American culture. This could be a good idea as far as American market is concerned, but it might not work in other markets. This is because different markets of the world have different cultures (Grant, 2010). Production of such products has led to difficulties of the company in penetrating into foreign markets.

The company is also over-emphasizing on American market. The company emphasis on American market will not work in the long run. This is because of its strategy of increasing more products in its product line which call for a diverse market. The current market is global and globalization phenomenon has helped business entities to reach many customers around the world. If the business continues emphasizing on American market than other markets, it would lag behind and may fail to utilize its full potential in terms of establishment of new markets (Grant, 2010).

Harley’s Financial Position

According to financial information shown by the company, it is clear that the company financial position is on the decline. The reduction in net profit margin of the firm from 2006 through 2008 demonstrates that the company is not moving in the right direction. The company seems to increase more assets in the firm but it is not deriving full utility of the assets. This can be shown by the increase of total assets followed by a decrease in return on investments. This means that the decisions of a company are not fully informed. But due to gradual change in its traditional products and methods of capturing customers, the company has a potential of increasing its profits. The poor financial position could also be attributed to financial crisis that hit many countries of the world in 2008 (Grant, 2010).

Recommendations

One of the strategies that have led the company to experience difficulties and to experience huge competition from its competitors is the motorcycle designs that follow American culture. If the company would be competitive in overseas markets, it has to design universal products. The company does not have to change the design but it has to produce goods that would also fit other cultures of their target markets. Another strategy is to keep track of technology and improvement in innovation.

The company has lagged behind in terms of technology. The company concentrated on manufacturing of twin cylinder engine while Japanese companies kept on improving their motorcycles. I would recommend that Harley-Davidson company to become technology conscious and aim at continuous improvement of their motorbike. The company needs also to diversify their portfolio. It needs to form other product lines like what its competitors are doing such as building motor boats, water pumps and other related machines. This would increase the company’s profits as well as its span of operations. Diversifying their portfolio could also hedge against risk that may arise in one product.

 

 

Reference:

Amason, A.C. (2011). Strategic Management: From Theory to Practice. New York: Routledge.

Grant, R.M. (2010). Contemporary Strategy Analysis and Cases: Text and Cases. New York, John Wiley & Sons, Inc

 

 

 

 

 

 

 

 

 

 

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