Harley drastically cut costs. They introduced a just-in-time

 

 

 

 

Harley
Davidson Case Study

Pedro
Diaz

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California
Baptist University

 

 

 

 

 

 

 

Harley Davidson Case Study

            Harley-Davidson,
Inc., May 2012 prepared by Robert M. Grant covers the life of Harley-Davidson
Inc. from its founding in 1903, by William Harley and brothers William, Arthur,
and Walter Davidson, up until 2012.

Harley-Davidson,
Inc. released their characteristic two-cylinder, V-twin engine in 1909 and by
1953 they “became the sole survivor of the 150 US motorcycle producers that had
existed in 1910” (Grant, 2010).

In 1969, Harley-Davidson began to face direct competition with Honda when Honda
introduced it’s take on a motorcycle that boasted “huge technical” advances
(Grant, 2010). From 1981-2008, Harley-Davidson was bought out from AMF and
begun to drastically cut costs. They introduced a just-in-time production
method, inspired by the Japanese, they called it “MAN” (Materials-As-Needed)
(Grant, 2010). They went public in 1986 and grew to over 60% market share in
1990. Sales soared in the 90s and Harley was challenged to satisfy demand. By
2004, sales exceeded 300,000 – a tenfold increase on 1983 (Grant, 2010).

            Harley’s growth trend was abruptly
stopped by the financial crisis of 2008 as customers defaulted on their loan
payments, orders plummeted, and inventory piled up. Keith Wandell was brought
in as the new CEO of Harley-Davidson on May 1st, 2009 and he had to
act quickly to begin to turn things around for the company and its
shareholders. During 2010 and 2011, Wandell lead a “comprehensive
transformation strategy which included a rethinking and restructuring of
Harley’s manufacturing operations, the transformation of its product
development system, and a drive to build distribution and grow sales in the
emerging markets of Asia and Latin America” (Grant, 2010). By the end of the
first quarter of 2012, Harley had shown an increase in year-on-year revenue of
16.7% and a growth in net income of 44.3% (Grant, 2010).

 

Harley-Davidson’s Strategy and Rationale

            Harley-Davidson Inc. has a focused differentiation
strategy. They focus on selling Heavyweight cruiser motorcycles to customers
who probably consider their motorcycle a luxury product. Harley-Davidson
practically created the heavyweight market in the US and their design focused
on “styling over either comfort or speed” (Grant, 2010). Harley differentiated
itself by building a product and selling it as a lifestyle, not just
transportation. Harley represented values such as individuality, freedom, and
adventure (Grant, 2010). The culture and brand that surrounds Harley Davidson
and each of their customized motorcycles continues to be one of their greatest
assets. Harley successfully differentiated based on customers’ psychological
and social needs by creating an experience where “you don’t just fit in. You
belong” (Grant, 2010).

            Harley-Davidson created value for
their customers by taking the customers on a journey and inviting them to be
part of an exclusive club. To increase their involvement with their customers
and the customer riding experience, Harley created an exclusive group called
the Harley Owner’s Group (HOG) in 1983 (Grant, 2010). Harley owners continually
reinvested into more Harley products like apparel, bike upgrades, and
customizations.

Resources and Capabilities vs Honda

            Harley-Davidson Inc.’s key strengths
are their brand and customer loyalty, distribution and their product
development system, MAN (materials as needed). Their key weakness is their
research and development for new products and international markets. As
mentioned in this case, Harley’s brand and customer loyalty is its greatest
asset. Harley is one of the oldest motorcycle companies around; having been
established for over 100 years, the brand continues to appeal to a certain
lifestyle. Dealers “play a pivotal role in delivering the experience” (Grant,
2010). Harley’s dealers continue to play a large part of the strategic priority
with over 90% of Harley dealerships in the US being Harley exclusive (Grant,
2010). The final key strength of Harley Davidson is their “MAN” system of
production that was modeled and inspired by the Japanese Just-in-time (JIT)
system and production scheduling program (Grant, 2010). Harley’s MAN system
allows for reductions in inventories and costs and improves quality control (Conrad, n.d.).

            Honda’s key strengths are their
ability to have product diversification with more research and development
spending which allows for international exposure and product development. Honda
benefits greatly from sharing its R&D across all their products like cars
and bikes. They are highly diversified and offer a similar style cruisier to
compete with Harley at a lower price with more advanced technology (Grant,
2010).

            Harley has lower production volume
and lacks buying power when compared to Honda. “Harley’s low production volumes
relative to Honda and the other Japanese manufacturers imposed significant cost
disadvantages, especially in the purchase of components” (Grant, 2010). Honda
has also started to establish its presence in international markets gathering
market share before Harley. International markets are also very different when
compared to the US markets. Europe, Harley’s focal point of overseas expansion
ambitions, has a very different motorcycle market with “70% of the heavyweight
motorcycle market being for performance bikes, while touring and cruiser
bikes accounted for just 30%” (Grant, 2010).

Threats to Continued Success

            Harley-Davidson faces many threats
to continued success including brand degradation, aging customer market,
international expansion challenges, and lack of intellectual & product
innovations. Their branding is being threatened by the increases of demand and
sales which is causing some customers to lose that sense of exclusivity. If
they lose their brand they lose their arguably strongest asset. But they are
facing difficult decisions as their target customer market begins to grow older
and their sales start to drag with the more conservative behaviors that old age
brings. Harley also faces challenges with low innovation in intellectual
property and products to expand to the EU and Asia market places, who prefer
sporty, light weight, low-priced, and technologically advanced motorcycles.

Harley currently has low market-share in Europe and Asia because they are not
innovating enough. The case notes that “between January 2000 and April 2012,
Harley was awarded 188 US patents” while “over the same period Honda was
awarded 10,982 US patents, Suzuki 625, and Kawasaki 2,002” (Grant, 2010). When
innovative competitors began to imitate Harley-Davidson, they lost some
competitive advantage, especially in Europe and Asia.

Sustain and Enhance Competitive
Position

            Harley-Davidson can sustain and
enhance its competitive position by focusing on making smaller, more affordable
bikes for a younger generation, continuing to transform and evolve their brand,
and increasing sales in the European and Asian market. They need to increase
production volume to obtain more cost advantages, increase intellectual
property to make imitation more difficult, and invest more into research and
development to continue to expand in overseas markets.

Conclusion

            In
the US, Harley-Davidson is a large market leader for heavyweight bikes but they
face many threats from competitors and market trends. Heavyweight cruiser
motorcycles are on the decline and Harley will need to address how that fact
relates to their brand and current product line. Harley needs to focus on
international expansion and product differentiation to continue growth in the
evolving motorcycle market landscape.

 

 

References
Conrad, B. (n.d.). The Advantages of Just-in-Time
Inventory Systems. Retrieved from Chron:
http://smallbusiness.chron.com/advantages-justintime-inventory-systems-20997.html
Grant, R. M. (2010, May). Case 7: Harley-Davidson,
Inc., May 2012. In R. M. Grant, Contemporary Strategy Analysis (Eighth
Edition ed., pp. 520-537). West Sussex, United Kingdom: John Wiley & Sons
Ltd.

Jurevicius, O. (2013, October 21). VRIO Framework.

Retrieved from Strategic Management Insight:
https://www.strategicmanagementinsight.com/tools/vrio.html
 

 

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