The Harley-Davidson Company

Abstract

Companies face many challenges during their growth and development. Harley-Davidson is a company that manufactures motorcycles that has faced many difficulties. It has laid down different strategies to overcome the challenges it has faced. Among the main competitors is Honda Company. This paper shows the challenges that Harley-Davidson has faced and the changes these have resulted to. The report will also present a comparison between Honda and the Harley-Davidson company.

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Introduction

The Harley-Davidson Company was founded in 1903 by Walter and Arthur Davidson and William Harley. The company was incorporated in 1907 after selling their 50th motorcycle. Initially, the company’s high success was ascribed to a victory in a race that occurred in 1908. The company initially dealt with heavy-weight motor vehicles. The company has undergone many transformations since it was founded: it has experienced being the market leader in heavyweight motor vehicles and near-bankruptcy. It has also been subjected to acquisition and going public. These transformations have prompted the company to install safety nets and implement measures that would deal with transformations and prevent similar occurrences from recurring in the future (Miltenburg, 2005).

That company has achieved success by manufacturing quality heavyweight motorcycles and by giving its customers a memorable experience with their motorcycles. The unique brands have a sound that makes other motorcycles “… sound like sewing machines” (Nolan and Kotha, 2007, p.2). Its colors and designs were stylish, and this signified a certain lifestyle and image. It targeted the affluent members of the society. As a result, the company became the world market leader in motorcycle production by 1918 having produced and sold over 28,000 motorcycles (Miltenburg, 2005).

The company achieved success in its early years by investing in research and development as well as experimenting with its new v-twin design. The company’s success was jeopardized by the entry of the Honda Company into the U.S market. The Japanese Honda Company had more diversified market targets as it initially focused on the middle income customers; later on, it would also manufacture heavyweight motorcycles, giving Harley Company a stiff competition. This was the beginning of Harley-Davidson’s difficulties.  Honda’s just-in-time production and low inventory strategies enabled it to produce heavyweight motorcycles to be sold at prices lower than that of the Harley-Davidson (Miltenburg, 2005).

 

Change processes in Harley-Davidson

The first of the changes that took place in Harley-Davidson was a transformation of the advertising outlets. The company changed its advertising agents despite the fact the agents had led the company to great heights. They had helped it become the world’s leader in production and sale of heavyweight products. When Harley-Davidson thought of revolutionizing its processes, it started with changing Easy rider as its advertising agent. Managers thought that advertising agents needed to be changed in order to re-organize the company. AMF’s managers thought that the advertising agents let the Harley-Davidson company to fail without giving the better strategies that could safeguard it (Miltenburg, 2005).

The other change that Harley undertook was allowing a takeover from AMF. AMF was a heavy industrial conglomerate company that wanted to diversify its line of products to include a leisure line. AMF decided to take over Harley-Davidson Company as a “white knight”. This was a decision by the company to increase its production. This decision was an informed one because Harley-Davidson increased its production from 15,475 units to 70,000 units in a span of 4 years. However, the acquisition had some disadvantages. The company had an urge to increase its production; therefore, it employed less skilled personnel in the production lines. The results of were low quality products (Miltenburg, 2005). Production of low quality products led to the loss of goodwill in the company. The company lost the reputation that it had gained while it was producing high-quality products the moment it integrated low-skilled labor in its production lines. In order to counter the low quality aspects and recover its market share, the company had to hire skilled labor that produced low volumes of high-quality motorcycle through the use of crafted methods. In addition, the company added new features to the products in order to capture new customers and new market segments. After terminating Easy Rider as the advertising the company’s product, the company hired Benton & Bowles to conduct their advertising (Black, 2008).

Benton wanted to expand the market share that was non-traditional, a place which had been occupied by Japanese companies. Another significant transformation was the buyback. When the Harley’s profitability went down, AMF started looking for a buyer. The Harley-Davidson top level managers decided to purchase the company and paid some in cash while the rest remained as debt. The debt led the company mangers to cut down production in order to be able to pay the debt as agreed. The cutting down of the costs had no significance as far as business was concerned, but it was simply for the survival of the company. Japanese companies had dominated the market that Harley-Davidson was in (Black, 2008).

Major transformations took place when senior managers decided to visit the Honda plant in Ohio. The visit led to the discovery that Japanese companies had well-managed and well organized operations. They discovered that the motorcycle assembly line was very neat, unlike in the Harley-Davidson plant where parts were simply scattered everywhere. The other discovery was that there was less paper work in Honda’s plant. The most important lesson that they learned was that Japan’s Honda Company had a new method of controlling their inventory. They embraced a just-in-time method and the technique did not require any kind of automation (Black, 2008).

The JIT system meant that the products were produced upon order but not to be stored as inventory. This system shocked the executives of Honda. They discovered that their failure was largely due to lack of planning and use of inefficient methods that were flawed. While comparing between the efficiency of production, only 5% of Honda’s motorcycles failed the inspection test for quality while in the case of Harley-Davidson’s motorcycles, they failed by over 50%. The report produced by Boston Consulting Group held that Honda Company was 30% more efficient in terms of productivity than Harley-Davidson (Black, 2008).

In response to what they discovered at the company, the senior manages decided to change their mode of production. The first step was to involve employees in decision making. The workers in the first line were allowed to participate in making critical decisions for the company. In response to the just-in-time inventory control they had learned, they introduced the MAN method which stood for materials-as-needed. This method was devised to reduce the cash that was trapped as work in progress. It was viewed that lowering the work in progress would fix the problems that were associated with quality and that the method would allow employees to take action (Black, 2008).

Employees were also taught how they could detect the problems of quality and how they could trace the problem during manufacturing and correct it. The management felt that performance would be improved by making proper use of the tools and equipment that were meant to lead the production to conform to the provided specifications. This is in addition to providing employees with incentives and this would lead to improvements in product quality (Chary, 2009).

In order to protect themselves from Japanese companies producing heavyweight products, the Harley-Davidson Company also looked for tariff protection from the government that would extend for five years. In addition to these changes, the company renewed its expenditures in research and development. These changes had a heavy impact on the company especially in terms of the inventory. Before the MAN program, the Harley-Davidson Company turned its inventory twice a year but after the new system, it turned it 17 times a year. Also, the company’s productivity increased by more than 50% and the WIP dropped 75%. The wastes also dropped by 68% and the overall market share, which had had been previously reduced for heavy weight motorcycles, increased by 97% (Chary, 2009).

Before the company went public in 1965, it had an informal management. After the initial public offering the company changed from its informal status to a formal one and emphasized on the learning of the staff at all levels of management. Also, there were some changes that were made in the hierarchical structure of the organization. The management eliminated several posts, among them senior vice-presidents in marketing and operations. The reason given was that the positions having no value addition in the company. Instead of having an enlarged management staff, the company decided to form teams which consisted of staff members. Initially, the junior staff used to report to a single boss who also reported to another person which made communication channel in the organization poor (Chary, 2009).

There were also changes to the company incentives and rewards system. The payment system was made flexible and people were paid according to their performance in the organization. They also made training open to all employees and gave them equal opportunities. They also devised programs for their leaders to attend leadership courses. This was conducted in order to inspire confidence in the company’s stakeholders that the leaders were properly equipped with the necessary knowledge and skills to lead the company to success (Chary, 2009).

The company also undertook an initiative to educate its line workers on the interrelationship between sales, products and profitability. The leaders offered to explain the various impacts of flexible production and cash flows on the company’s financial success. Harley-Davidson realized that employee empowerment was the key to increasing individual worker efficiency; in response, he revised job descriptions and made some changes in individual worker responsibility as well as making changes to production processes. This was aimed at empowering workers and job enrichment (Chary, 2009).

These changes had led the company towards its initial position of being a market leader in production of heavyweight motorcycles. Also later, Harley-Davidson took over Buell Motorcycle Company through an acquisition. Buell Company specialized in manufacturing of performance motorcycles and the acquisitions were aimed at in broadening the span of Harley-Davidson’s motorcycle production. The changes were very significant to the company and the decisions were informed. This was evident as the company had started regaining its position by claiming its initial position as a market leader in the United States. Its regained success could be trailed back to the visit of the senior executives to the Honda’s Ohio plant where they learned on various methods of efficient production (Chary, 2009).

 

Other measures that could have been taken

There are other strategies that could result to increased profitability in Harley-Davidson; one of this is cost leadership. The company could set their prices below the Japanese companies’ prices. This strategy would work best since there was untapped market in the United States that formed a potential. Many people are price sensitive; this could be said to be the reason behind the success of the Honda Company in the U.S. since the company learned various methods of cost reduction from the Honda plant in Ohio. It would devise ways of reducing the costs in all activities in its value chain. Cost leadership also does not mean that a company has to have a low price (Naruse, 2003). Harley-Davidson Company would charge an average price and reinvest the profits in the business.

The other strategy is differentiation. Although the company had differentiated its heavyweight motorcycle in terms of sound, there could be other ways to differentiate the product. Through differentiation, the company would be able to charge its high premium in the market. Differentiation in the company included guaranteeing an American experience. Harley differentiated its products only on sound and high prices. Creating innovative products could also be the way to achieve increased profitability. Innovativeness could be achieved through research and development. It was therefore important for the company to invest heavily on research and development in order to come up with ways of differentiating their motorcycles (Naruse, 2003).

The company could also diversify its products by producing medium weight motorcycles as well as the light weight motorcycles. Concentric diversification is important because it would help the company to reach the market that they had not tapped. The medium and the light weight market was untapped market for the company. The company had ignored this market since it was founded. This was a great opportunity for the company since the Americans wanted always to be associated with a company that produced products following American experience and culture (Naruse, 2003). This was a phenomenon that Harley-Davidson knew very well.

Lean manufacturing processes would also be a great idea for the company. If the company embraced the Japanese Kaizen and Kanban processes, it could lead to reduction of costs through minimization of wastes. Harley-Davidson Company had many wastes and if the pit reduced its wastes, the overall costs of production could be reduced and the company would realize more profits. Lean manufacturing processes could also reduce the amount of inventory that was held by the company at a particular time in the company. This could therefore increase the efficiency in the company and the company would realize more profits (Naruse, 2003).

Harley-Davidson could also use the focus strategies. This would be where they could shift much of their focus on availing medium weight and light weight motorcycles in the market. As the company differentiated its products, it would be wise to undertake niche marketing. The growing demand of motorcycles in the United States shows that the company had an opportunity to increase its sales. The bigger market was for both the light and the medium weight customers. It was important for the company to utilize every opportunity that arose in the market. These strategies also would ensure that the company remained profitable and that steady growth is achieved (Naruse, 2003).

 

Approaches of Honda and Harley-Davidson to Achieve Success

Contrast

The first of the differences between Harley-Davidson and Honda Company was the target market. Harley had targeted the baby boomer members of the society. The customers of Harley-Davidson were largely made up of the older members of the society. Honda Company had the opportunity to take advantage of this market position since generation Y and X made up the larger population of the United States’ population. The reason why Harley-Davidson positioned itself to baby boomers was because this is the group that is known to be more stable because they have investments. On the other hand, Honda Company targeted generation Y because this was the generation that formed the higher percentage of the United States population (Müller, 2003). Honda also felt that the group was fun loving. Such positioning led to the success of the company.

The other difference was how the two companies held their manufacturing processes. The Harley-Davidson production process always held large amounts of inventory. The company always made sure that it had enough products in inventory in order to avoid cases of shortage. This protected them situations that could result into losses as a result of shortage such as machine breakdown. On the other hand, Honda Company had different methods of dealing with inventories. Honda used just in time method to reduce the amount of inventory held by the company. This was a great method that contributed to the success of the company (Müller, 2003). Honda produced motorcycles by order. This method was very successful and prevented the heavy costs that could be incurred by handling large amounts of inventory.

The other difference is that Harley-Davidson is involved in corporate social responsibility. They sponsored the Harley-Davidson group which had many members that were estimated as 900,000 towards the end of 2004. The company sponsored the group and organized rides and training courses as well as other social events. It also indulged in charity fundraisings. In order to implement this, Harley-Davidson printed a motorcycle magazine. On the other hand, the Gold Wing Road Riders that was owned by Honda had only 75,000 members (Müller, 2003). This showed that Harley-Davidson was engaged in social corporate social responsibility more vibrantly than Honda Company.

The other difference was that Honda Company was Japan based. This gave it an advantage because it had experiences of the market in Japan. The experience it had acquired in Japan led the company to understand the psychology behind the motorcycle market. On the other hand, the Harley-Davidson company had enough experience of the American market. This knowledge in the market allowed the company to retain its market share even after being threatened by the Honda Company. The knowledge of the market helped the company to rejuvenate even after being exposed to great crisis of in the market (Müller, 2003).

The other difference was that the products were differentiated by the sound they produced. Harley-Davidson motorcycles made their products with a more hoarse sound such that when the motorcycle was some distance away, one could distinguish between the manufacturers by their sound. On the other hand, Honda’s motorcycles had a soft sound. This difference also mattered in terms of making sales. Customers always associated the Harley-Davidson’s sound with an American experience (Müller, 2003). Since the market liked to be associated with the America, the market of Harley-Davidson always was on the rise.

Honda Company was highly innovative. They introduced new designs constantly. This made their products fashionable, meeting the needs of their larger market that consisted of young individuals. On the other hand, Harley-Davidson was slow in innovation and in their response to market changes (Nolan & Kotha, 2007). They were also slow in producing designs which gave their competitors an easier chance of taking their market share.

The other difference was that Honda’s premises were neat and did not have much paper work. This was ascribed to the JIT system. On the other hand, the Harley-Davidson company was untidy. The Harley-Davidson managers visiting the Honda plant found it neat and tidy. They were almost unable to compare with their own plant which was littered with scattered spare parts. Also, in accounting Harley-Davidson invested heavily on automating inventory monitoring and processes while Honda Company did not invest heavily on such processes due their JIT system (Nolan & Kotha, 2007).

 

Comparison

The first similarity is the market that they targeted. Market is very important as far as business is concerned. The two companies operated in the United States. This market was potential for the products. This is why Japan set up a plant in the United States because the U.S market was viable. The viability of the market led them to compete in different market segments in the United States. This was a great idea and helped the companies to gain their customers and become profitable (Nolan & Kotha, 2007).

The other similarity is that both companies imitated each other. Initially the Honda Company targeted the middle income riders; later on it also targeted the baby boomers that were financially secure. Harley-Davidson also imitated the Japanese company by indulging in just-in-time manufacturing processes. They termed their process as MAN which was similar to the JIT processes that was adopted by the Japanese company. The companies also engaged in corporate social responsibility. Honda Company had Gold Wing Road Riders Association while Harley-Davidson had the Harley-Davidson Owners Group (Nolan & Kotha, 2007). These groups engaged in various tasks that were aimed at improving the welfare of the community in the United States.

These companies were also similar in a manner that they were experiencing seasons of increased sales and other seasons of reduced sales. When Honda started to manufacture heavyweights, they affected the sales of Harley-Davidson. During this period, the sales of Harley-Davidson Company reduced dramatically while those of Honda Company increased. Similarly, when Harley-Davidson embraced the MAN method of dealing with manufacturing inventory, their sales increased while those of the Honda were reduced (Nolan & Kotha, 2007). Their market showed that they were competing in a common market wherein the two competitors were inversely related in that increase in sales of one company led to decrease in the other one.

 

Conclusion

These differences and similarities in the modes of operations led to both companies gaining their customers. They improve their operations by learning from one another. It is clear that the two companies are dependent on each other. These companies have undertaken changes especially in their strategies in order to thrive in the market. Harley-Davidson in particular has undergone various changes including being taken over and acquiring other companies. These transformations have improved the operations in the company and have increased efficiency in its operations.

 

References

Black, J.R., 2008. Lean production: implementing a world-class system. New York: Industrial Press Inc.

Chary, S.N., 2009. Production and operations management. New Delhi: Tata McGraw-Hill Education.

Miltenburg, J., 2005. Manufacturing strategy: how to formulate and implement a winning plan. New York: Productivity Press.

Müller, M., 2003. Essentials of inventory management. New York: Amacom Publishers.

Naruse, T., 2003. Equalized & synchronized production: the high-mix manufacturing system that moves beyond JIT. New York: Productivity Press.

Nolan, R.L. & Kotha, S., 2007. Harley-Davidson: preparing for the next century. Massachusetts: Harvard Business School.

 

 

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