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Harley Davidson Case Study

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HARLEY DAVIDSON CASE STUDY

With the growing global economy, companies are looking for ways to improve their market share. Many excellent firms have learned how to beat their competitors through the implementation of new management, marketing, and/or manufacturing techniques. Harley-Davidson is one of those excellent companies whom has challenged traditional ideas. We intend to show through this case study that any company can follow Harley-Davidson's techniques and lead themselves to excellence.

Company History

Harley-Davidson Motorcycle Company was established in 1903 by William Harley and Walter, William, and Arthur Davidson, who built their first three motorcycles in a shed in Milwaukee. In 1909, the company introduced its trademark bike; a 2 cylinder, v-twin engine (the fastest motorcycle at that time), able to reach speeds of 60 mph. However, a few years later the competition was becoming stiffer. During World

War I, the demand for United States motorcycles overseas grew tremendously. As a result, Harley-Davidson became a leader in innovative engineering in the 1920's. With the introduction of the front brake and "teardrop" gas tanks, Harley was quickly developing its mystic appearance. The industry, which was thriving after World War I, was diminishing quickly as a result of the Great Depression. As one of only two remaining motorcycle companies, Harley-Davidson survived because of exports and sales to the police and military.

Representative of the World War I motorcycle market, Harley-Davidson prospered from military purchasing during World War II. Over 90,000 cycles were built for the military which elevated their production to record levels and earned them the coveted Army-Navy "E" award for excellence in war time production. After the war, Harley went from producing military to recreational bikes. Harley developed and introduced the K-model (1952), Sportster ("Superbike", 1957), and Duo-Glide (1958) motorcycles. By 1953, Harley-Davidson was the last remaining major motorcycle manufacturer in the US.

Harley-Davidson was taken over by the American Machine and Foundry (AMF) in 1969. AMF put the company up for sale in the late 1970's due to a gross reduction in sales. The reduction in sales was representative of a poor level of quality in the Harley bike compared to their Japanese counterpart. In 1981, thirteen members of the Harley-Davidson management team purchased the company from AMF in a leveraged buy-out. But, within the first year, overall demand for motorcycles dropped dramatically and Harley's share of this market also continued to drop. This even greater reduction in sales for Harley resulted in a large inventory of unsold products. Harley was aware they would no longer be able to continue their business at their current production level and operating cost. Therefore, production was cut drastically, and more than 1,800 of the 4,000 employees were let go. In a move to help the floundering United States motorcycle industry in 1983, President Ronald Reagan increased tariffs on large Japanese motorcycles from 4.4 percent to 49.4 percent. But this increase was only effective for five years and would decline annually.

Minutes away from bankruptcy in 1985, CEO Richard Teerlink convinced lenders to accept a restructuring plan. Using management principles adopted from the Japanese, new marketing strategies, and manufacturing techniques, Harley improved quality and began the long battle to regain its market share. In 1987, one year before the tariffs on Japanese heavyweight motorcycles were scheduled to end, Harley announced they no longer needed special tariffs to compete with the Japanese motorcycle giants; showing confidence in the new system.

Today Harley-Davidson Inc., an employer of 4,694 workers, consists of Harley-Davidson Motor Company based in Milwaukee and Eagelmark Financial Services Inc. based in Chicago, Illinois. In addition, there are nearly 600 dealerships throughout the United States. Harley's commitment toward continuous improvement is exemplified in these contrasting financial statements in the table below.

1985 Corporate Results from Hoover's Company Profile Database

Net Sales - $288 million

Net Income - $3 million

Earnings per Share - $0.09

1995 Corporate Results from 1995 Annual Report

Net Sales - $1.35 billion

Net Income - $112 million

Earnings per Share - $1.50

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THE THREE M'S OF HARLEY'S SUCCESS

MANAGEMENT

MARKETING

MANUFACTURING

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Management

Although Harley was very profitable during World War I and World War II, this status quickly changed during the 1970's. After the leveraged buy-out, Harley's new owners realized that in order to make the necessary improvements, they had to determine what went wrong. After careful analysis, the management team developed the following list of practices which were main contributors to the problems previously experienced:

* Corporate management focused mostly on short term returns.

* Management did not listen to its employees or give them responsibility for the quality of what they made.

* High inventories of parts gobbled up cash and reduced productivity.

* Belief in quick fixes for problems, such as throwing in computers and state-of-the-art machinery to improve productivity.

* High break-even point that left the company vulnerable to unpredictable market fluctuations.

* Management that woke up too late to the threat of foreign competition because of the "it can't happen here" syndrome.

As with anything in life, recognizing the problems to any given situation is only half the battle. The development of methods for improvements and gaining company wide support for implementation was the key. The first accomplishment was for management to learn the importance of relationships. Strong relationships with workers can aid in the advancement

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