Harley-davidson Strategic Analysis

STRATEGIC MANAGEMENT CASE ANALYSIS

CASE: HARLEY DAVIDSON, Inc. -2004 By RICHARD.A.COX FRANCIS MARION UNIVERSITY

Submitted by, HARI PRAKASH.N.V

Harley Davidson, Inc Mission Statement says: “We

fulfill dreams through the experiences of motorcycling, by

providing to motorcyclists and to the general public an expanding line of motorcycles, branded products and services in selected market segments”

Vision Statement says: “Harley-Davidson is an action-oriented, international company, a leader in its commitment to continuously improve [its] mutually beneficial relationships with stakeholders (customers, suppliers, employees, shareholders, Government, and society). Harley-Davidson believes the key to success is to balance stakeholders’ interests through the empowerment of all employees to focus on value-added activities.

MISSION analysis COMPONENTS CUSTOMERS PRODUCTS & SERVICES MARKETS CONCERN FOR SURVIVAL TECHNOLOGY PHILOSOPHY SELF CONCEPT CONCERN FOR PUBLIC IMAGE CONCERN FOR EMPLOYEES

YES / NO YES YES YES YES NO YES YES YES NO

MISSION STATEMENT EVALUATION MATRIX

PROPOSED MISSION To be branded as the best motorcycle available in the world. PROPOSED VISION The best quality motorcycle, motorcycle products and financial services will be provided world wide is the commitment of Harley-Davidson. Customer satisfaction is our motto and the Harley-Davidson customers can experience the taste of reality of motorcycle dreams by relaying their satisfaction on us. HarleyDavidson is dedicated to use the advanced technology to produce the most superior motorcycle in domestic and international markets. Stay competitive and continue growth worldwide remain profitable and survive is our philosophy. Employees of Harley-Davidson are the foundation of the company and they are the driving force behind the Harley-Davidson name. The total team effort of Harley-Davidson employees is devoted to fulfilling dreams of customers and we believe that there is not a motorcycle riding experience like a Harley-Davidson’s. Excellence is our push though our Harley-Davidson bar and shield logo that says superior quality. Honesty and customer loyalty and these morals are the heartbeat of Harley-Davidson organization. Harley-Davidson do our part in supporting all environmental laws in

every country we do business. Determination and commitment is the place where Harley-Davidson intends to stay. .

EXTERNAL ANALYSIS

PESTLE •

Harley-Davidson is one of the most admired and recognized companies in the world today.

•

Academy of Motorcycling for those interested in learning to ride a motorcycle.

•

“Riders-Edge” the motorcycling academy of Harley-Davidson introduced more than 1000 aspiring motorcyclists to the sport in 2000.

•

Average purchaser of a U.S Harley-Davidson motorcycle is a married male in his mid-forties

•

Average purchasers of a U.S Harley-Davidson have a household income of $78,600.

•

Over two thirds of the sales of Harley-Davidson motorcycles are to buyers with at least one year of education beyond high school.

•

30% of the Harley-Davidson buyers have college degrees.

•

Only about 9% of Harley-Davidson U.S retail motorcycles are to women.

•

Confidence in economy is directly proportional to the purchasing of consumer items.

•

Repeat business is strong as about 42% of motorcycle purchasers have owned a Harley-Davidson previously.

•

U.S Government and People are considering Harley-Davidson as an American icon.

•

Opportunities in emerging economies [India, China] but uncertain operating situations.

•

A new assembly facility opens in Manaus, Brazil, the first operations outside of the U.S, reduces taxes, make them more affordable to a larger group of Brazilian customers.

•

Harley-Davidson is one of the main manufacturer and user of VENGINE configuration.

•

Harley-Davidson’s have a wide variety of products according to Standard, Performance, Touring & custom.

•

Harley-Davidson is facing some legal problems in Asian countries, in India there is 60% tariff and various other taxes will cause the price of the bike to double.

•

Noise pollution and some emission standards of Harley-Davidson bike is not up to the level of some countries across the globe.

Five Forces  Internal Rivalry. •

Four major competitors are mainly concentrated on these heavyweight

motorcycle

segments:

in

addition

to

Harley-

Davidson the other three are Yamaha, Suzuki, Honda all are Japanese companies. •

Some of the major competitors of Harley-Davidson have larger financial and marketing resources and are more diversified (Example: Yamaha, half of its revenue is only from motorcycles).

•

Polaris (American snowmobile/ATV manufacturer) producer of “Victory” motorcycles priced its motorcycles below the HarleyDavidson motorcycles.

•

Strategic alliance between Suzuki and Kawazaki in the areas of product development, design, engineering, and manufacturing of motorcycles, this alliance strengthened both companies’ global motorcycle businesses.

•

Honda, the main competitor of Harley-Davidson in U.S eat up some market share of Harley-Davidson.

 Potential entrants •

Entry barrier is very high is this segment, because this segment needs a lot of capital investment and the industry is on a maturity stage, so that there is only four main competitors.

•

The economies of scale are low in this segment, which is the reason why there are only four major players.

•

There is some small scale producers, who are making these custom made motor cycles but the amount of their production is not at all a threat for Harley-Davidson, and they are increasing the interest of motorcycles among the general public.

 Substitute products

•

Harley-Davidson motorcycles are a luxury vehicle, so that there is only a few close substitutes for heavy weight motorcycles that could seriously affect the market.

•

Passenger cars, sports bikes, scooter bikes are the main substitutes of Harley-Davidson motorcycles.

•

The people who are thinking of buying a heavy weight motorcycle are not seriously considering one of these options, scooter, sports bike.

•

In India Enfield can pose as a small substitute.

 Power of suppliers •

Steel,

basic

electrical

equipments

and

shipping

of

final

motorcycles are the main things Harley-Davidson seeks from suppliers. •

Harley-Davidson has a wide span of suppliers, so that if one supplier attempted to increase the price, they can easily switch to the alternate suppliers without any problem in production..

 Power of Customers •

Consumers

of

Harley-Davidson

motorcycles

are

individual

customers, so that they can’t seriously affect Harley’s financial position. •

The numbers of dealers around the globe are also less and they are also dependent to the individual customers, that can’t affect Harley-Davidson’s financial position.

OPPORTUNITIES  The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world.

 Women and younger riders are increasing becoming interested in bikes  The international heavy weight market is growing and is now larger than the U. S. heavyweight market  Market share increasing in Europe and Asia for the last two years  Increasing demand in US markets for bikes  Customers value quality parts

THREAT  Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market share in recent years  Harleys average buying age is 42 years old and increasing  The European Union’s motorcycles noise standards are more stringent than those of Environmental Protection Agencies in the U.S and increased environmental stand  Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified  Environmental protection laws  Buell division needs to continue to produce a quality motorcycle under Harley’s brand name.

EFE MATRIX Weighted Key external factors OPPORTUNITIES

Weight

Rating

score

The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world

0.15

4

0.6

0.15

4

0.6

interested in bikes Market share increasing in Europe and Asia for the last two

0.1

3

0.3

years Increasing demand in US markets for bikes Customers value quality parts

0.1

3

0.3

0.1

2

0.2

0.025

1

0.025

0.15

4

0.6

0.1

3

0.3

0.025

3

0.075

0.025

2

0.05

0.025

4

0.1

0.05 1

1

0.05 3.2

The international heavy weight market is growing and is now larger than the U. S. heavyweight market Women and younger riders are increasing becoming

THREAT

Harleys ongoing capacity restraints caused a shortage supply and a

loss in domestic market share in recent

years Harleys average buying age is 42 years old and increasing The European Union’s motorcycles noise standards are more

stringent than those of Environmental Protection

Agencies in the U.S and increased environmental stand Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified Environmental protection laws Buell division needs to continue to produce a quality motorcycle under Harley’s brand name TOTAL

CPM HARLEY

HONDA

YAMAHA

CRITICAL SUCCESS FACTORS

Advertising Product Quality Price

Weighted Weight

Rating

0.15

4

0.15

Score

Weighted Weight

Rating

0.6

0.2

3

4

0.6

0.05

0.1

1

0.1

0.025

3

0.1

Score

Weighted Weight

Rating

Score

0.6

0.15

4

0.6

3

0.15

0.025

3

0.075

0.15

3

0.45

0.25

3

0.75

0.075

0.03

4

0.12

0.05

2

0.1

2

0.2

0.14

4

0.56

0.335

3

1.005

0.15

4

0.6

0.06

2

0.12

0.15

2

0.3

0.025

3

0.075

0.05

4

0.2

0.02

3

0.06

0.3 1

2

0.6 2.85

0.32 1

3

0.96 3.16

0.02 1

2

0.04 2.93

Competitivenes s Management Financial Position Customer Loyalty Global Expansion Market Share TOTAL

INTERNAL ANALYSIS FINANCIAL RATIOS LIQUIDITY RATIOS Current Ratio = Current Assets / Current Liabilities = 2729/956 = 2.85 Quick Ratio = (Current Assets – Inventory) / Current Liabilities =(2729-208)/956 = 2521/956 = 2.63 LEVERAGE RATIOS Debt to Total Assets Ratio = Total Debt / Total Assets =994/4923 =0.20 Debt to Equity Ratio = Total debt / Total stock holders equity =994/2958

=0.34

Long Term Debt Equity Ratio = Long term Debt / Total stock holders equity =670/2958 = 0.23 Times Interest Earned Ratio = Profits before interests and taxes / Total Interest charges =1149/0 ACTIVITY RATIOS

Inventory Turnover = Sales / Inventory of finished goods =4624/208 =22.23 Fixed Assets Turnover = Sales / Fixed Assets =4624/2194 =2.10 Total Assets Turnover = Sales / Total Assets =4624/4923

=0.93

Accounts Receivables Turnover = Annual Credit Sales / Accounts receivable =4624/1114 =4.15 Average Collection Period = Accounts Receivables / (Total credit sales/365) =1114/(4624/365) =1114/12.66 =87.99 PROFITABILITY RATIOS Gross Profit Margin = (Sales – COGS) / Sales =(4624-3070)/4624 =1554/4624=0.34 Operating Profit Margin = EBIT / Sales =1149/4624 =0.25 Net Profit Margin = Net Income / Sales

=761/4624 = 0.16 Return on Total Assets ( ROA ) = Net Income / Total Assets = 761 / 4923 = 0.15 Return on Equity ( ROE ) equity

= Net income / Total Stock holders = 761 / 2958 = 0.26

Earnings Per share (EPS)

= Net income / Total stock holders

equity

= 761 / 302 = 2.519

Price Earning ratio

=Market price per share/Earning

per share =39.11/2.519 =15.526 Growth ratio Sales

=Annual % growth in total sales =(4624-4091)*100/4091=13.029

Net income

=Annual % growth in profits =(760-580)*100/580=31.034

STRENGTHS  Net income of 2003 was $760mn, its more than 30% as compared to the previous year 2002.  The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market  Harley-Davidson operates in two segments: Harley-Davidson motorcycles & related products and HDFS (Harley-Davidson Financial Services).  Harley-Davidson is the only major American heavyweight motorcycle manufacturer.  Strong brand name.  The HOG (Harley Owners Group), which have a 7,50,000 members world wide is the industry’s largest company sponsored motorcycle enthusiast organization.  Buell Riders Adventure Group (BRAG) was also formed recent  Customization of the bikes, this is Harley-Davidson’s major revenue maker.  Harley-Davidson have a good marketing division and its divided as dealer promotions, customer events, magazine and direct-mail advertising, and public relations. WEAKNESS  High price  Harley-Davidson has problems in gaining more market share in some European countries (That’s one of the main markets for Heavyweight motorcycles outside U.S).  They didn’t yet start its sales in India, one of the biggest markets.  Required production is not met, analyzing the future of Heavyweight motorcycle market IFE MATRIX

WEIGHTED KEY EXTERNAL FACTORS STRENGTHS

WEIGHT

RATING

SCORE

0.15

3

0.45

0.09

3

0.27

0.025

4

0.1

0.1

4

0.4

0.15

4

0.6

0.05

2

0.1

0.025

2

0.05

0.025

3

0.075

0.025

2

0.05

0.15

2

0.3

Net income of 2003 was $760mn, its more than 30% as compared to the previous year 2002 The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market Harley-Davidson operates in two segments: Harley-Davidson motorcycles & related products and HDFS (Harley-Davidson Financial Services) Harley-Davidson is the only major American heavyweight motorcycle manufacturer Strong brand name The HOG (Harley Owners Group), which have a 7,50,000 members world wide is the industry’s largest company sponsored motorcycle enthusiast organization Buell Riders Adventure Group (BRAG) was also formed recent Customization of the bikes, this is HarleyDavidson’s major revenue maker Harley-Davidson have a good marketing division and its divided as dealer promotions, customer events, magazine and direct-mail advertising, and public relations WEAKNESS

High price

Harley-Davidson has problems in gaining more market share in some European countries (That’s one of the main markets for Heavyweight motorcycles outside U.S).

0.06

3

0.18

0.1

3

0.3

0.05 1

4

0.2 3.075

They didn’t yet start its sales in India, one of the biggest markets Required production is not met, analyzing the future of Heavyweight motorcycle market TOTAL

SWOT matrix

Opportunity SO Strategy: 

EXPAND PRODUCTION TO

Threat ST Strategy 

INCREASE STRONG BRAND



NAME INCREASE MARKET TO

EUROPE  Strength

EXPAND PRODUCTION TO ASIA

WO Strategy

YOUNGER CUSTOMER

WT Strategy



IMPROVE EMPLOYEE RELATIONSHIP

Weakness

GRAND STRATEGY MATRIX RAPID MARKET GROWTH

STRATEGY: MARKET DEVELOPMENT, MARKET PENETRATION, PRODUCT DEVELOPMENT, HORIZONTAL INTEGRATION, DIVESTITURE, LIQUIDATION.

SPACE Matrix Environmental 2 3 4 2

Stability (ES) Technological changes Rate of Inflation Demand variability Price range of

-2

5

competing products Barriers to entry into market Competitive pressure Ease of exit from

-6

3 3 2

market Price elasticity

-3 -2

Financial Strength (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow Inventory Turnover Earnings per Share Price Earnings Ratio

of

-2 -3 -6

-4

demand Risk involved Total

24

Product quality

Strength

how Resource utilization Ease of entry into

5

-1 -4

market Productivity, capacity

6

-1

utilization

4

Competition's capacity utilization Technological know-how Control over suppliers &

-30

-1 -1 -3

Product life cycle Customer Loyality

-2

(IS) Growth potential Financial stability Technological know

Competitive Advantage (CA) Market share

business Total Industry

in

3 3

4

-2

distributors Total

-13

Total

25

Average value for FS = 3 Average value for CA = -1.85 Average value for IS = 4.17 Average value for ES = -3.33 Point on X axis = (-1.85+4.17)/2 = 1.16 Point on Y axis = (3-3.33)/2 = -0.165 Strategies:

STRATEGY: BACKWARD INTEGRATION, FORWARD INTEGRATION, HORIZONTAL INTEGRATION, MARKET PENETRATION, MARKET DEVELOPMENT, PRODUCT DEVELOPMENT.

I.E MATRIX EFE: 3.2 IFE: 3.075

STRATEGY: BACKWARD INTEGRATION, FORWARD INTEGRATION, HORIZONTAL INTEGRATION, MARKET PENETRATION, MARKET DEVELOPMENT, PRODUCT DEVELOPMENT

BCG MATRIX RELATIVE MARKET SHARE: 48% GROWTH RATE:

13.029

STRATEGY: MARKET PENETRATION, MARKET DEVELOPMENT, PRODUCT DEVELOPMENT, DIVESTITURE.

QSPM J.V EUROPE AS TAS

J.V ASIA AS TAS

0.075

3

0.225

3

0.225

0.045

3

0.135

2

0.09

0.0125

4

0.05

3

0.0375

0.05

4

0.2

4

0.2

0.075

4

0.3

2

0.15

motorcycle enthusiast organization Buell Riders Adventure Group (BRAG) was

0.025

2

0.05

3

0.075

also formed recent Customization of the bikes, this is Harley-

0.0125

2

0.025

4

0.05

Davidson’s major revenue maker Harley-Davidson have a good marketing

0.0125

3

0.0375

3

0.0375

0.0125

2

0.025

2

0.025 0

0.075

2

0.15

2

0.15

0.03

3

0.09

3

0.09

STRENGTH

WEIGHT

Net income of 2003 was $760mn, its more than 30% as compared to the previous year 2002 The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market Harley-Davidson operates in two segments: Harley-Davidson motorcycles & related products and HDFS (Harley-Davidson Financial Services) Harley-Davidson is the only major American heavyweight motorcycle manufacturer Strong brand name The HOG (Harley Owners Group), which have a 7,50,000 members world wide is the industry’s largest company sponsored

division and its divided as dealer promotions, customer events, magazine and direct-mail advertising, and public relations WEAKNESS

High price Harley-Davidson has problems in gaining more market share in some European countries (That’s one of the main markets for Heavyweight motorcycles outside U.S).

They didn’t yet start its sales in India, one of the biggest markets Required production is not met, analyzing

0.05

3

0.15

3

0.15

0.025

4

0.1

4

0.1 0

0.075

4

0.3

2

0.15

0.075

4

0.3

3

0.225

0.05

3

0.15

4

0.2

0.025

3

0.075

4

0.1

0.1

2

0.2

3

0.3

0.0125

1

0.0125

2

0.025

market share in recent years Harleys average buying age is 42 years old

0.075

4

0.3

3

0.225

and increasing The European Union’s motorcycles noise

0.025

3

0.075

2

0.05

0.0125

3

0.0375

2

0.025

0.0125

2

0.025

3

0.0375

0.0125

4

0.05

2

0.025

0.025 1

1

0.025 3.0875

2

0.05 2.7925

the future of Heavyweight motorcycle market OPPORTUNITIES

The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world The international heavy weight market is growing and is now larger than the U. S. heavyweight market Women and younger riders are increasing becoming interested in bikes Market share increasing in Europe and Asia for the last two years Increasing demand in US markets for bikes Customers value quality parts THREAT

Harleys ongoing capacity restraints caused a shortage supply and a

standards are more

loss in domestic

stringent than those of

Environmental Protection Agencies in the U.S and increased environmental stand Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified Environmental protection laws Buell division needs to continue to produce a quality motorcycle under Harley’s brand name

STRATEGY RECOMMENDATION & IMPLEMENTATION:  MARKET PENETRATION  Get some more market share from the existing market, like U.S, U.K, and Japan etc through more marketing techniques like advertising. Harley-Davidson has a good brand name so it’s easy for them to eat up the competitor market share if they can provide some more customer benefit.  Competition is high in this segment mostly in U.S so market penetration can be a good choice for the company.  Expand the HOG (Harley Owners Group) to Asian countries, if the company can provide the customer satisfaction that they are providing to the U.S customers to the Asian customers they can increase the sales.  PRODUCT DEVELOPMENT  Younger generation and female are now coming to this segment so expand the motor cycle segments to younger generation and females.  In Europe they can increase or expand the Buell’s market share by introducing new motorcycles.  MARKET DEVELOPMENT  Harley-Davidson can bring in their vehicle to Asian countries like India and China, because these countries have a high population and the market potential is also high.  The cost to bring in the old vehicles (old product) to India is so much difficult because there are so much environmental laws are there which won’t allow that type of vehicles to come to India, and its difficult that taxes and levis are high in India so starting new plant in India can solve this problem. Negotiations with the Government can solve these problems.

 DIVERSIFICATION  Bring in new vehicles to new markets like India and China is a good choice, but it’s too costly.  Bringing new types of recreational vehicles is a best choice. RECOMMENDATION  Expand European and Asian market.  Increase the sales of Buell sport bike and Harley-Davidson to younger customers and females.  Horizontal diversification: acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines.  Concentric diversification: Bring in new recreational vehicles. EVALUATION  REVIEW UNDERLYING BASES OF STRATEGY  Once again prepare all the internal and external analysis (eg: EFE & IFE)  Compare the already prepared analysis with the one which will be prepared after the new strategy implementation.  MEASURING ORGANIZATION PREFERENCES  Analyze all financial ratios (current and the future).  If any advantage, then implement the new strategy, otherwise continue with the present one.

 Reference:  Strategic Management Concepts and Cases; Fred R. David, 10th & 12th Edition.  www.harley-davidson.com

 www.google.com