Strategic Audit of Harley-Davidson

Case 16
Strategic Management MGMT 436
Group 5
 Current Situation (Jw Hayes)
A. Current Performance 2008

 Revenue 2008 $5.59 billion down from $5.73 billion in 2007

 Net Income $654.7 million down from $933.8 million in 2007

 Earnings per stock share $2.70 down from $3.74 in 2007

 Motorcycles sold 303,470 down from 330,619 in 2007

http://investor.harley-davidson.com/ReleaseDetail.cfm?ReleaseID=360949
B. Strategic Posture
 Mission
 We ride with our customers and apply this deep connection
in every market we serve to create superior value for all of our
stakeholders.

 Objectives
 We fulfill dreams inspired by the many roads of the world by
providing extraordinary motorcycles and customer
experiences. We fuel the passion for freedom in our
customers to express their own individuality.
 Strategies

 Get Cost structure correct

Obtain funding for Harley-Davidson Financial Services

Invest in the Harley-Davidson Brand

 Policies
Customers for life….
Harley-Davidson values the deep emotional connection
that is created with our customers through our products,
services and experiences. We are fueled by brand loyalty
and trust that our customers place in us to deliver premium
quality and the promise of a fulfilling lifetime ownership
experience. We exemplify this commitment by embracing
a culture of personal responsibility and stewardship for
quality in everything we do.
 2. Corporate Governance (Jw Hayes)
A. Board of Directors
NOMINATING
AND HUMAN
CHAIRMAN CORPORATE RESOURCES
OF THE DATE OF BOARD GOVERNANCE AUDIT COMMITTE OTHER
DIRECTORS JOB TITLE BOARD COMMENCEMENT COMMITTEE COMMITTEE E DIRECTORSHIPS
Senior Advisor to
Providence Equity Fiduciary
Partners President, Management
Barry K. Allen Allen Enterprises, LLC X May-92 X BCE Inc.
               

Heidrick &
Struggles
International
Chairman of Simpson Inc. Evercore
Richard I. Beattie Thacher & Bartlett LLP Aug-96 X X Partners Inc.
               
Chairman of the Board
Jefferey L. Bleustein Harley-Davidson, Inc. X Jun-97
               

Akamai
Technologies,
Inc. Oracle
Corporation.
Executive Chairman, Ironwood
Akamai Technologies, Pharmaceuticals
George H. Conrades Inc. May-02 X X , Inc.
               
 DreamWorks
Animation. Aon
Judson C. Green Vice Chairman, NAVTEQ Nov-04 X X Corporation.
               
Co-founder, equity
owner and Chairman
and Chief Executive
Officer of Deeley
Harley-Davidson
Canada/Fred Deeley
Donald A. James Imports Ltd. May-91
               
Former Non-Executive
Chairman of ClubMom,
Sara L. Levinson Inc. Feb-96 X X Macy’s Inc.
               
WESCO Intn’l
Inc. EQT
Corporation.
American
International
Chair, Chester Group, Inc. HFF,
George L. Miles, Jr. Engineers, Inc. Aug-02 X X Inc.
               
Chairman of the Board,
James A. Norling GlobalFoundries Inc. Dec-93 X X
               
President and CEO, CFO Harley-
James L. Zeimer Harley-Davidson, Inc. 2004 Davidson
               
Chief Executive Officer
and Chairman of the
Jochen Zeitz Board, Puma AG Aug-07 X X Puma AG. PPR.
 Names Title Names Title
VP,
Motor Company Leadership Kathleen A. Lawler Communicati ons
VP, Enthusiast
Corporate Offi cers Harley-Davidson, Inc. Lara L. Lee Services
VP, Materials
James L. Zeimer President and CEO Matthew S. Levatich Management
VP, General
Thomas E. Bergmann Executive VP and CFO Gail A. Lione Counsel
VP, General Counsel and
Gail A. Lione Secretary James A McCaslin President and COO

Managing Director,
VP, Treasure, Chief Asia Pacifi c and
James M Brostowitz Accounting Offi cer Jeff erey A Merten Latin America
VP & Director,
Joanne M. Bischmann VP, Marketi ng Louis N. Netz Styling
David P. Bozeman GM, Powertrain Operations John A Olin VP, Controller
VP, Human
James M. Brostowitz VP, Treasurer Harold A. Scott Resources
GM, General
Leroy Coleman VP, Advanced Operations Patrick Smith Merchandise
VP & GM, Powertrain
Rodney J. Copes Operations W. Kenneth Sutton Jr. VP, engineering

VP, North American Sales Managing Director,

William B. Dannehl and Dealer Services Michael van der Sande HD Europe
VP, Customer
Relationships and
William G. Davidson VP, Chief Styling Offi cer Jerry G. Wilke Product Planning
VP & GM, Kansas City Financial Services
Karl M. Eberle Operations Harley-Davidson Leadership
VP, Operations,
Robert S. Farchione GM, Parts and Accessories Lawrence G. Hund CFO
VP, Chief credit
and
Administrati ve
Fred C. Gates GM, York Operati ons Kathryn H Marczak Offi cer

James E. Haney VP, Chief Informati on Offi cer Saiyid T. Naqvi President
Michael P. Heerhold GM, Tomahawk
Company
Timothy K. Hoelter VP, Government Aff airs Beull Motorcycle Leadership
Chairman and
Chief Technical
Ronald M Hutchinson VP, New Business Erik F. Buell Offi cer
VP & Director Harley Owners
Michael D. Keefe Group Jon R. Flickinger President and COO
 External Environment (John Taylor)
A. Natural Environment
• Rising gas prices will affect transportation
and shipping costs, negatively affecting
company profits. Some consumers will not
buy another vehicle to put expensive fuel in
while others may buy a motorcycle for better
gas mileage during higher prices.
 External Environment (John Taylor)
-North American market is steady and the international market is growing. Numbers reflected that sales in the foreign
markets were... 19% in 2005, 20% in 2006, and 27% in 2007 of Harley Davidson's overall sales.

--Constant rising gas prices since the Terrorists attacks on the US in 2001, have a continued impact on sales and the cost of
production and overall company profits.

Rivalry High.. Competition Motorcycle manufacturers continue to improve designs and provide a competitive market for
Harley Davidson to compete for new consumers.

. Buyers Power High, With many 30 different models of Harley's ranging from $6,695-$20,645 and 8 models of Buell Bikes
from $4,695-$11,995, consumers have many options of finding the bike that meets their needs while staying in their price
range

Distributors Power High. Harley-Davidson has 684 independently –owned full-service dealerships, 307 of them which are
combined H.D. and Buell Dealers. As of 2007, 370 Independent H.D. Dealerships and distributors serving 32 European
Countries. 323 of which were combined H.D. and Buell dealers. A new dealership coming to South Africa in 2008.

Threat of Substitutes Medium. Honda is a big competitor of motorcycles from small “crotch rockets” and large cruising
and touring bikes.
 External Environment (John Taylor)
B. Societal Environment
STEEP

Category ISSUE Threat/Opportunity Ranking

Economic Rising Fuel prices Threat 1

Pending recession Threat 2
Double digit growth in international dealer network during 2007 Opportunity 4
Planned opening of dealership in S. Africa Opportunity 3
Addition of Buell motorcycles to H.D. dealerships Opportunity 5

Technological Creation of www.harley-davidson.com in 2001 Opportunity 2

Just-in-time Inventory Strength 1

Political-Legal U.S. and Foreign environment control (EPA) Threat 1

National Traffic and Motor Vehicle Safety Admin. (NHTSA) Threat 2

Sociocultural Rider Training and Safety Strength 1

 EFAS Table (John Taylor)

WEIGHTED
External Factors WEIGHT RATING SCORE COMMENTS

Opportunities

Double digit growth in international market 0.1 4 0.4 Growth doubled in international dealer network for 2007
New dealership in S. Africa 0.1 3 0.3 New dealership being built in South Africa in 2008
Addition of Buell motorcycle line 0.2 5 1 Soaring Profits from adding the Buell line to H.D. dealers
E-commerce, online catalog 0.03 1 0.03 www.harley-davidson.com developed in 2001

Threats

Rising Fuel Prices 0.3 1 0.03 Steady sharp rise in fuel prices since 9/11

Consumers may keep aging motorcycles or wait to

Pending recession 0.2 2 0.4 purchase

Stricter Government environmental controls add to cost

U.S and Foreign environment controls (EPA) 0.03 2 0.06 of production.

Stricter Government environmental controls add to cost

National Traffic and Motor Vehicle Safety of production.
Admin 0.03 2 0.06

Total Scores 1 2.28

4. Internal Environment (Nick Schnabel)

A. Corporate Structure
· Business segments:

• Motorcycles and related products and Financial Services.

• The decision-making procedure within Harley-Davidson is

decentralized according to which department is the most

appropriate to address certain issues or to make the

decisions.

.
B. Corporate Culture
• Harley-Davidson values the deep emotional connection that is created

with our customers through our products, services and experiences.

• Promote stronger bonding between the top management and the non-

management workers by implementing the FISH philosophy

throughout the entire company.

• Harley-Davidson promotes fairness, financial transparency and

accountability to all our shareholders

 C. Corporate Resources (Travis Toborg)

 Marketing
Marketing was divided into several different areas that are common for most all
companies. These Areas included Dealer promotions, Customer Events, Magazines,
Direct Mail advertising, Public Relations, Cooperative Programs with Harley/Buell, and
TV commercials. You will also see Harley promotions at several popular sporting
evens such as racing and even UFC.
 Finance
In 1985 Harley-Davidson was 4 hours from shutting there doors. Citicorp, Harleys
main lender denied lending money in 1985 but with only 4 hours remaining to find a
lending company, Harley made a deal with Heller Financial and managed to save the
company. At this current time it is now funded by HDFS (Harley-Davidson Financial
Services). Which is a lending company for Harley-Davidson motorcycles among
several other helping factors. This means the company basically now funds itself.
 R&D
Harley feels that research and development of there custom and touring
motorcycles is a large part of the way they compete against the competition. They spent
$178.5 million in 2005, $177.7 million in 2006, and $185.5 million in 2007 in areas such
as style, purchasing, and manufacturing.
 Operations
Harley-Davidson has 684 dealerships in the U.S. and of those 307 were also Buell
dealers. Their are 104 Secondary Retail Locations (SRL's), 68 Alternate Retail Outlets
(ARO's), and 12 Seasonal Retail Outlets (SRO's). This makes the US the largest supplier in
sales of Harley-Davidson motorcycles.
22% of the companies sales came from foreign Operations in Europe/Middle East/Africa
at 370 dealers with 323 being combined with Buell, Asia-Pacific 130 Harley dealers with
57 selling both brands, Latin America with 31 dealers none of which also sold Buell's, and
Canada which has 75 dealers, 45 of which sell both brands of motorcycles.
Human Resources
Approximately 50% of the manufacturing employees of Harley-Davidson's own

Harley's themselves and buy from dealerships so they have first hand experience with

what they are contributing too as a work force. There are roughly 9,000 employees of

Harley-Davidson

Information Systems
None
 V. Analysis of Strategic Factors (John Lerch)
• A. Situational Analysis (SWOT)
• Strengths
• Acquiring Buell

• Financial Self Reliability

• Weaknesses
• Seasons
• Baby Boomer Era Ending

• Competition with Several Japanese Companies

• Opportunities
• Addition of Buell Motorcycle Line
• Double Digit Growth in International Market

• Threats
• Pending Recession
• Rising Fuel Prices
 V. Analysis of Strategic Factors (John Lerch)

B. Review of Current Mission and Objectives

1. Harley Davidson’s Mission and Objectives
focus on the customers and the acquisition
of Buell falls in line with the mission.

2. They should continue on with current

mission and objectives and seek ways to
continue capitalizing on the international
market.
 V. SFAS Matrix (John Lerch)
Duration

Inter
m
e
Weighte d
d i
Sc a
Weigh or t
Strategic Factors t Rating e Short e Long Comments
               
S4 Acquiring Buell 0.2 5 1     X Drive sales up with more options
S1 Self Reliable Financially 0.15 5 0.75 X X   Could possibly end but lenders would step in
               
W4 Seasons 0.1 4 0.4     X Create sales spikes and drops
W1 Baby Boomer Era Ending 0.15 2 0.3 X X   Drove sales
W2 Competition with several Japanese
Companies 0.15 2 0.3     X Cost more to own and repair
               
O3 Addition of Buell Motorcycle Line 0.2 5 1 X X   Soaring Profits from adding the Buell line to H.D. dealers
Growth doubled in international dealer network for
O2 Double digit growth in international market 0.1 4 0.4 X     2007
               
Consumers may keep aging motorcycles or wait to
T2 Pending recession 0.2 2 0.4   X X purchase
T1 Rising Fuel Prices 0.3 1 0.03     X Steady sharp rise in fuel prices since 9/11
VI. Strategic Alternatives and Recommended Strategy
(Shavera Leveille)
A. Strategic Alternatives
1. Stability Strategy: Pause/Proceed with caution. Analyze the effects the recession will
have on the company then react accordingly.
a. Pros: Acknowledgment of areas that are weak and need improvement. The profit
strategy would not beneficial it only masks the issues instead of confronting them.
b. Cons: Strong Competition from competitors that are larger, established, and more
diversified.

2. Growth Strategy: Horizontal growth strategy; concentric diversification, strategic

alliance, and joint ventures. Target new market segments by developing products and
services for females and younger bikers both domestically and internationally.
 a. Pros: New markets would help increase customer base, brand loyalty, and
profitability.
b. Cons: The new market segments may not be able to afford the products and
services offered. Strategic alliances and joint ventures may result in loss of control
over operations, conflicts, and higher risks.

3. Retrenchment Strategy: Turnaround strategy; close down unprofitable foreign

plants and consolidate operations.
a. Pros: Allows for concentration on business segments and plants that are profitable.
Prevents further losses.
b. Cons: Hinders growth
B. Recommended Strategy
Recommend alternative #2 which is growth for Harley-Davidson. The current customers
are mainly comprised of the Baby Boomers. Harley-Davidson Inc. may benefit from
recruiting younger customers to possibly build lifetime customer loyalty that can be
passed down to younger generations. Women are also a great market segment to target
because research shows that the number of female riders has risen significantly over the
past few years. Concentric diversification, strategic alliances and joint ventures enable
entry into foreign markets, knowledge of local conditions, sharing of costs, resources,
and assets. Although, the company is facing a recession the costs of Harley-Davidson
products and services should not be reduced, but rather competitively priced so that
quality is not sacrificed