The aim of this paper is to discuss the critical evaluation of the transformation process undertaken by Harley Davidson and analyse the contribution that the transformation made to the success or failure of the Harley Davidson. This paper also highlighted the competitive analysis of the US motorcycle industry and analsye the strategies that helps the Harley Davidson to get the sustainable competitive advantage from their 2nd most powerful competitor Suzuki. All the related strategies are described in Appendix due to word limitation. This paper also focuses on the further strategies such as EPR system, porter generic strategies etc. by which Harley Davidson would get competitive advantages before 2004. As a manager, author would also recommend differently and how they could use those strategies before 2004 to get the sustainable competitive advantages and also the successful implementation of transformation process.
This study involves a general evaluation of Harley Davidson to assess its transformation process. The study also attempts to assess the impact of the change on their performance. More specifically, the study aims at:
- Identifying Harley’s transformation process
- Justifying the transformation process
- To conduct a brief literature on change management relating with Harley’s case
- Analyse the Harley’s competitive advantage from their competitor
- To recommend differently as a manager regarding different strategies to get the sustainable competitive advantage
The report has used various books, e-journals and websites.
It is assumed that information collected for the purpose of the report is correct and relevant.
1. Company Overview
Harley Davidson began in Milwaukee in 1903 when two partners, Bill Harley and Arthur Walter Davidson, developed a one cylinder motorcycle. Harley Davidson grew quickly. By 1912 Harley Davidson was exporting their motorcycles overseas. During WW1, over 20,000 Harley-Davidson motorcycles were used. By the end of the war there were over 2000 dealerships worldwide.
After WW1, the demand for motorcycles in Europe grew rapidly. Harley Davidson became a leader in innovative engineering during the 1920’s. However, during WW2 Harley Davidson prospered with sales of motorcycles to the military. They earned the coveted Army-Navy award for excellence in wartime production. After WW2, Harley Davidson transformed from producing military to recreational motorcycles. By 1953, Harley Davidson was the last remaining motorcycle manufacturer in the United States.
By 1960 Harley Davidson had begun a gradual decline. Harley Davidson merged with the American Machine and Foundry Company (AMF). This merger briefly raised sales. By the mid 1970s, a declining market, a sluggish economy and increasingly fierce competition from Asian manufacturers was once again taking its toll on Harley Davidson. This culminated in a 1981 management buyout saving Harley Davidson from bankruptcy.
After the 1981 management buyout, Harley Davidson had to re-organize. Faced with a terrible reputation for quality and rising costs, Harley Davidson focused on marketing. It wanted to differentiate itself from its competitors by building upon its heritage and its unique American styling. These improvements turned Harley Davidson into a remarkable success story. Between 1999 and 2004 revenues grew on average 14% yearly while profits grew 23% on average yearly.
Harley Davidson is now the largest American motorcycle manufacturer. They design manufacturer and sell heavyweight touring, custom and performance motorcycles. Currently the company has over 28 models of touring and custom Harley motorcycles distributed through a network of more than 1300 dealerships worldwide. They also sell motorcycle parts, accessories, clothing and collectibles. The company also makes motorcycles under the Buell nameplate.
(Source: Harley-Davidson, 2009)
2. Change Management
Change is constant. Change in organisations is said to often be made in three areas: 1) structure, i.e. new services or programs; 2) technology, i.e. alteration in equipment and/or automation; and 3) people, i.e. selection, hiring, training, relationships, and attitudes. Change management is a strategy designed to transition from the status quo to some new ideal way of doing business. Change management has been defined as ‘the process of continually renewing an organization’s direction, structure, and capabilities to serve the ever-changing needs of external and internal customers’ (Moran and Brightman, 2001, pg. 111). According to Burnes (2004) change is an ever-present feature of organizational life, both at an operational and strategic level. Therefore, there should be no doubt regarding the importance to any organisation of its ability to identify where it needs to be in the future, and how to manage the changes required getting there. Consequently, organisational change cannot be separated from organisational strategy, or vice versa (Burnes, 2004; Rieley and Clarkson, 2001). Due to the importance of organisational change, its management is becoming a highly required managerial skill (Senior, 2002).
3. Change Management Process
Organisational change can be described as the process of moving away from a current condition to realize some future state. Change management involves managing the process of achieving this future state. According to Nickols, (2004), change can be viewed from two vantage points, that of the people making the changes and that of the people experiencing the changes. In the top-down process, or strategic viewpoint associated with management, the focus is on technical issues such as the investment required, the processes for implementing the change, how soon the change can be realised, and the outcome. In the process of bottom-up viewpoint of the employee, the focus is on what the change means to the individual, how they can cope with the change, and also how management can assist them through the transition. In this context, effective change management should be able to help individuals evolve from negative feelings such as fear and anxiety towards positive feelings about the changes being made. Effective change management deals with diagnosing problems and determining an alternative that involves changing the organisational structure or processes. It also identifies and deals with the individual responses to change that can hinder the success of the project. To understand change management better, we need to understand the various models and strategies that managers may follow. Some of the models include the Leadership model, Improvisational Model, Theory E versus Theory O, and the ADKAR model (Please Refer Appendix A1)
4. Harley Davidson Transformation Process
The Harley Davidson transformation began with a company that was suffering. In the 10 years to 1983, Harley’s market share of the 850 CC plus motorcycle category had dropped from 80% to 23%. The company was hemorrhaging cash and profits. Staffs were demoralised. The culture and environment was toxic. According to Jenkinson & Sain, (2009), the Transformation process of the Harley Davidson was divided into two phases:
The first phase of the transformation involved rationalisation and tough command and control management. This was First phase of change management process. It was not enough however to create success for this positivity and commitment of Harley Davidson. For this reason Harley Davidson decided to go second phase of the change process (Jenkinson & Sain, 2009).
The second phase of the management was core-integrated marketing of Harley Davidson. Harley Davidson had to move out of financial regulation and power governance into shared marketing commitment towards vision and value based on a collective appreciation of the Harley identity (Jenkinson & Sain, 2009).
Harley’s problems began it was the company was sub optimized internally, with many hostile management/union relationships, and failed to match the market in customer value. The Japanese did not create the problem: they exposed the problem. Many companies share this problem. They may have succeeded in avoiding the extreme problems that Harley had, often by effective first phase management. The challenge of is to move into second phase. Second phases Integrated Marketing depends first on uniting everyone around a collective vision of value that connects to the identity and purpose of the organisation/brand. This depends on a profound and shared understanding of customers and an organisation that can deliver value seamlessly throughout all customer experiences across the relationship. This also means connecting and matching spiritual with practical qualities: vision, purpose, values with information, processes, and systems (Henshaw & Kerr, 2001).
5. Implementation of Transformation process
There are a number of factors that affect the strategies used for change management (Please refer Appendix B1), and ultimately whether the change is effective. One set of factors is how resistant people are to change. People may resist change because they are unsure of how it affects them, misunderstand the changes, have a different assessment of the current and future environment, or simply have a low tolerance for change. A second factor is the urgency of the change. How important is it, and how critical it is to the business needs of the organization? This also affects the time frame under which the changes need to be implemented. A third factor is how ready is the organisation for the change? Does it have the skills and knowledge needed to implement the change? Finally, management will have preferred strategies for managing the change. This might be based on research and studies they have made, or from past experiences (Kotter, 1996).
If we look at the various models (Please refer Appendix A1) for change, it is apparent that there are certain situations where a particular model will not be as effective. For example, I would not expect the improvisational model to work well in a rigid, autocratic environment. This model would work best in an informal, cooperative environment where the workers are encouraged to take risks and display initiative, and everyone is open to new ideas (Orlikowski and Hofman, 1997). The Theory E and Theory O models represent opposite ends of the spectrum. Theory E is more appropriate when the focus is on the short term, and the goal is to maximize the return on investment. The Theory O is more appropriate when the emphasis is on the long-term survival of the company (Beer and Nohria, 2001). The leadership and ADKAR models are both effective in situations where the change is a programmed change, and management needs to secure the buy-in and support of the employees. Both of these models emphasize the leadership aspect of change management, and deal with the behavior of individuals in response to change.
6. Transformation Model for Harley Davidson
Integrated Marketing amounts to a widening of the responsibility, potential and vision for many marketers and therefore for marketing. Rich Teerlink, CEO of Harley-Davidson, describes a leadership journey by which just such a transformation took place. Under his leadership, Harley-Davidson changed from a somewhat toxic, hierarchical, command and control organisation to something new and nimble that is the present-day foundation for its ongoing success as an Integrated Marketing leader. Initially that change did require command and control to get out of the solvency crisis. However, the sustained success that Harley Davidson has, its came from a different kind of change. Involvement, empowerment and alignment were the secret of success of Harley Davidson. The result is something called the Business Process, an extensive and ongoing programme of Harley Davidson that involved and involves everyone in the Harley Davidson from top to bottom in establishing shared values and vision, shared mission and operating philosophies, and agreed objectives and strategies (Jenkinson & Sain, 2009).
According to Teerlink (cited in Jenkinson & Sain, 2009) and his partner in the process, consultant Lee Ozley, “Instead of demanding compliance, managers have to earn, and call upon, commitment”. The extensive change process, over several years, that led to this, known as the Joint Vision Process, also led to a radical new organisation. Instead of the conventional hierarchical structure, Harley-Davidson developed what they call a circle organisation of three overlapping elements concerned with creating demand, producing products and providing support. A leadership and strategy council at the centre has members nominated from these circles.
Harley-Davidson Circle organisation
Jeff Bleustein, former president of parts and accessories, describes the uniqueness of the circle organization, According to Bleustein, there are a lot of companies with self-managing work teams on the factory floor. In fact, that’s where a lot of innovation comes in some companies as far away from the executive offices. He took this concept of self-managing groups and made it work at the executive level of Harley Davidson. The solution to Integrated Marketing is not to blindly copy the Harley- Davidson solution. Jeff Bleustein also give some criticism against the integrated marketing approach. He predicted that integrated marketing approach would not work, because Harley Davidson grew organically out of the process. However he has observed some other radical structures both within the marketing department of the large organisation. He was certain that to achieve best practice in Integrated Marketing there is a need for the organisation structure to grow out of and reflect the organising idea of value and purpose that animates the brand organisation, rather than be driven by traditional considerations of power and status (Jenkinson & Sain, 2009).
Ron Hutchinson, currently vice president for parts, accessories and customer service, gives a perspective on this change and its effect that relates to Integrated Marketing. He verified that this was a vision of the way people needed to be engaged in an organization, and developed a structure the Business Process of Harley Davidson that allows for theoretical alignment of an individual’s job with the long-term direction of the company. Hutchinson aware of that no other organisation has built a whole process and structure around that. In the final analysis, he would say the customer service department, where a customer spent eight hours a day taking phone calls from unhappy campers, is a true test of whether the Business Process works or not. He was convinced that Harley Davidson wouldn’t have the reputation that they have today in the marketplace if they didn’t have front-line people excited by charismatic, visionary leadership, who can see exactly how their little piece of the organization fits into the long-term strategy and direction of the company (Teerlink & Ozley, 2000).
According to Teerlink, to complement the organizational changes, new rewards and incentive systems were introduced. They are changing their pay system to pay for performance. They needed their people to understand empowerment. An employee must make the decision that he or she wants more training no one will tap an employee on the shoulder but once an employee are there, they will help an employee. The executive committee was the first group to go through the [Leadership] institute. They didn’t want anyone to get the attitude that the executive committee doesn’t have anything to learn (Nolan & Kotha, 2007).
Line workers were exposed to the interrelation among products, sales, and profitability. Harley Davidson also prepared nontechnical explanations of how cash flows and flexible production affected financial success. Harley made substantial changes in worker job descriptions, responsibilities, and production processes to increase job enrichment and worker empowerment. In 1993 Harley-Davidson acquired a minority interest in the Buell Motorcycle Company, a manufacturer of performance motorcycles. Through this investment Harley hoped to enter select niches within the “performance” motorcycle market, which several top executives thought would return Harley to its heritage of product innovation and development through lessons from the racetrack (Teerlink & Ozley, 2000).
7. Successful Transformation process in Harley Davidson
Due to successful transformation process of Harley Davidson (H-D), impressive integrated marketing strategy gave Harley Davidson a brand name that more recognized than any other company. Indeed, the strategy was not to focus on reducing the costs, or on the distribution improvement, but the main element was to create customer value. In other words, H-D’s was to give more credibility, trust, safety, desires, quality of product and service, and thus fidelity to its brand. In order to reach that goal, H-D centralised its marketing on these topics, for example creating a Harley Owners’ Group who rallies more than 900,000 members worldwide (Harley-Davidson, 2009). The main interest of this group is to ensure members to know each other, and become a second family who share the same interests, wills, and thoughts. This integrated marketing strategy also ensures H-D to maintain a strong relationship with its customers, and thus a strong brand name all over the world. According to customers, the owners of H-D say that this brand understands customer’s needs, and also that they are always for their customer if a problem appears. These remarks can be linked with H-D’s values. According to H-D “Our values are the heart of how we run our business. They guide our actions and serve as the framework for the decisions and contributions our employees make at every level of the Company.” These values are: Be Fair, Tell the Truth, Keep Your Promises, Respect the Individual, and Encourage Intellectual Curiosity (Harley-Davidson, 2009).
This integrated marketing approach can also be linked with the mission statement of H-D:
“We fulfill dreams through the experience of motorcycling by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments (Harley-Davidson, 2009).”
In order to be successful, organizations must determine clear financial and strategic objectives (Hitt et.al, 2005). Harley Davidson gained a greater market share, achieved higher product quality than rivals, maintained a stronger reputation and a better branding strategy than its competitors, increased levels of customer satisfaction and finally attained stronger customer loyalty due to successful transformation process.
In the 60’s and 70’s Harley’s strategic intent was based on “going shoulder-to-shoulder against the predominantly Japanese companies” (Harley-Davidson, 2009). Harley could not compete on the price level, and the Japanese products were of superior quality, Harley decided to compete in other areas. Their new strategy was to connect with people on an emotional level. They are not selling a product but a way of life, a way of thinking. Due to successful transformation process of Harley Davidson changed its strategy from selling products to selling community (Teerlink & Ozley, 2000). And the fact that H-D has developed a Brand stretching strategy, which was an element of Harley’s success in developing relationships with customers. Indeed, owners can buy other Harley’s products than bikes; it means that they can be more than a biker, they can join Harley’s group buying leather accessories or clothes, and even cosmetics.
8. Competitor Analysis/Strategic Issues
There are four strategic issues that H-D has to face with. The most important is the European market where H-D has to increase its sales, then, linked with the first issue, there is a fierce competition with the Japanese firms such as Honda and Yamaha. The other issues are the women’s market and the accessories, which are in decline.
Harley-Davidson is not very famous in Europe where Harley’s market share of 650 cc plus motorcycle is less than 7% (6.6%), while in North America Harley-Davidson has a huge market share (46.4%), 21.3% for the Asian market. The main industry competitors are Honda, Suzuki, Yamaha, Kawasaki and BMW. Harley-Davidson is the market leader in the U.S. market with 46.4% market share (Teerlink & Ozley, 2000). Their domestic position is quite secure however the rival companies are all aiming to increase their impact on the North American market.
Rival manufacturers such as Kawasaki or BMW have all made a serious attempt to establish them at the heart of Harley’s market. The Japanese bikes were often considered to be ‘sissy’ cycles by Harley lovers (Mitchell, 2001). This image is slowly changing and the Japanese companies are trying to ‘out Harley’ the Harley models. Yamaha motor USA is starting to improve its position in its various markets. The U.S. sales have increased for 47% since 1998. Harley Davidson had a tough time in creating an image for themselves particularly in the cruiser markets. Harley continues to dominate the U.S market and is also the leader in the Asian/Pacific markets with 21.3% market share (Henshaw & Kerr, 2001).
Yamaha is also trying to outperform Harley and is improving its mass customization skills. The Yamaha website offers a section that allows customers to design their own bike and choose the look and functionality they desire. The interface ensures customers to choose from 75 Yamaha accessory items and makes it easy for the customer to purchase the bike online. The Yamaha V Max model, the Drag Star, and the Road Star models attract customers with their slick design and technological tweaks (Yamaha, 2009). The Yamaha sports models are also very successful and the company is still maintaining a strong position in world markets.
European rivals are also trying to make an impact on this lucrative market. Italy’s Moto Guzzi recently introduced the V11 EV custom cruiser. BMW introduced 3 models of its R1200C cruiser and thanks to clever advertising is beginning to improve its position in the U.S. and Asian markets (BMW Annual report, 2004).
9. Harley Davidson’s Strategic Implementation
While Harley was booming in U.S market during the late 1950s, then the market attracted Japanese motorcycles manufacturers, beginning with Honda. Other Japanese firms, Suzuki, Yamaha and Kawasaki also followed Honda. Behind Honda, Suzuki was the main competitor for Harley Davidson and while Suzuki marketed smaller, quieter and more fuel-efficient motorcycles that required little or no maintenance and were easier to handle compare to Harley’s bikes. In order to get sustainable competitive advantages, Harley Davidson implemented different types of strategies that helped them become one of the most dominant motorcycle producers in the world as well as differentiate them from their one of the most powerful competitor Suzuki.
As stated earlier, strategic issues that H-D has faced is increased segmentation in the motorcycle industry causing them to shift focuses in their strategy. With the purchase of Buell Motorcycle Co. they have been successfully able to increase their market segmentation by offering high quality bikes at competitive price. This allowed H-D to have the opportunity to move from a differentiation strategy to a cost/differentiation strategy (Henshaw & Kerr, 2001).
Harley Davidson’s use of the Cost/Differentiation as a Business Level Strategy has proven highly successful since they have been in business. They have always tried to differentiate themselves from everyone else in the motorcycle industry, by producing a brand image that many competitors have failed to recreate. Harley Davidson has two different companies built into one. The first of the two companies produces motorcycles at competitive prices against their competitors. Harley Davidson demands high standards of quality and efficiency and demand lower costs, which will add to a higher quality less expensive motorcycle. Harley Davidson has done extensive research to find out information about their average customer. Harley Davidson concluded that the average motorcycle consumer is a married, college educated, 38 year-old male earning $44,250 a year and his average income is increasing. Research also shows that females represent 10% of the new purchasers (Henshaw & Kerr, 2001).
The second company that Harley Davidson implemented is the Costume Vehicle Operations or CVO. This company specializes and customizes the motorcycles to suit the individual owner. Harley Davidson also offers genuine parts and accessories so Harley owners can customize their own motorcycles. The CVO tries to use the differentiation strategy to beat out its competitors. The customisation of a motorcycle can prove to be very expensive and time consuming, but Harley Davidson knows that what good is a bike if you cannot show people who you really are. The customers are willing to wait an average of 1 year after placing their order to receive their customized motorcycle. Every other motorcycle manufacturer is trying to imitate Harley and their products. Harley has the top of the industry manufacturing process with large state of the art factories, and distribution, with many small and personalized, to market dealers, who sell their products (Harley-Davidson, 2009)
Harley Davidson’s Corporate Level Strategy tends to favour the Related Diversification Strategy. Their two primary businesses are related to each other in some manner or another. The two divisions, CVO and the Competitive Price Division, are related by using the same suppliers. Although the two divisions serve two totally different responsibilities to the consumers, they are truly related in their strengths to differentiate themselves from all the other competition. Harley Davidson does not do much promotion at the corporate level. Primarily, the local dealers do their promotion (Mitchell, 2001).
Harley Davidson Motor Co. of Wauwatosa, Wisconsin has become known for translating process innovation into business revival. A significant contributor to this growth is a new-product cost management strategy, based on design for manufacturability. The company recognized that while 70% of their product cost was determined at the design function, the cost strategy went far beyond the function of product development. Their strategy was two fold, with the first linking cost management to corporate objectives, and the second validates and measures progress towards cost targets. Cross-functional integration was paramount in implementing this strategy. Cost analysts work with development team members, while design engineers worked closely with manufacturing personnel to understand cost constraints in conjunction with an understanding of how things would be made. This strategy has helped Harley-Davidson capture nearly 50% of the U.S. market for motorcycles, while achieving double-digit revenue growth (Teerlink & Ozley, 2000).
As a manager author will identify the key areas of further strategic implementation by which Harley Davidson will get sustainable competitive advantage in their industry.
Author identifies that Harley Davidson still not using the EPR system. Harley Davidson can use the ERP system to enhance the integrated marketing approach. Usually ERP systems will have many components including hardware and software, in order to achieve integration, most ERP systems use a unified database to store data for various functions found throughout the organisation. The term ERP originally referred to how a large organization planned to use organizational wide resources. In the past, ERP systems were used in larger more industrial types of companies. However, the use of ERP has changed and is extremely comprehensive, today the term can refer to any type of company, no matter what industry it falls in. In fact, ERP systems are used in almost any type of organization large or small. In order for a software system to be considered ERP, it must provide an organization with functionality for two or more systems. While some ERP packages exist that only cover two functions for an organization Payroll & Accounting, most ERP systems cover several functions. Today’s ERP systems can cover a wide range of functions and integrate them into one unified database. For instance, functions such as human resources, supply chain management, customer relations management, financials, manufacturing functions and warehouse management functions were all once stand alone software applications, usually housed with their own database and network, today, they can all fit under one umbrella the ERP system (Tech-faq, 2009).
In retrospect, author would have recommended that Harley do a few things differently. First, they could have researched the literature on what types of problems mechanistic manufacturing organizations face when they try to implement an ERP system in a highly inflexible environment. There was enough research and case analysis available to do this. While they were clearly aware of potential change resistance and the need to get all stakeholders involved, the amount of time their search and selection process required was ridiculous in today’s business environment. Author speculate that the sheer demand and high prices of their product allowed them to wallow in their inefficiencies a few more years before they had to bite the bullet (Hirschboeck et.al, 2004).
Second, obtaining the advice of experienced software and supply chain consultants earlier in the process probably could have saved some time and created a defined focus. Often, managers use the discipline and recommendations of consultants to reinforce the need for organizational change. With the purchasing process out of control, they could have brought in some purchasing expertise to clean up some of the mess before selecting a software system to help organize the process.
According to the website, only 10% of the Harley’s customers are females. But female bikers are more and more interested by bikes (www.moto-station.com). Yamaha and Kawasaki are trying to take advantage of this growing interest of female bikers and many of their ads feature women on motorcycles. Harley Davidson can take this new opportunity to get sustainable competitive advantage in their industry.
Another key issue for the future is the problem of the accessories. Indeed, those products such as perfumes or cosmetics are decreasing a lot. So, Harley-Davidson should take a decision about this unsuccessful strategy of brand stretching. But, this strategy has a lot of success regards to the leatherwear and fashion area. Harley-Davidson should continue to improve this brand stretching and not leave the market of cosmetics and perfumes.
Harley was successful in transforming its scattered purchasing functions into a supplier relationship management program. The supplier portal now serves 300 of its 695 suppliers. In 2004, the company was extending portal access to its accessories and merchandise suppliers. This year, Harley will have about 300 IT employees (Hirschboeck et.al, 2004). The department should manage by experienced leaders who specializing in a particular area of expertise supporting a key company function.
Record earnings for the first quarter of 2004 were gained from a 13% increase in sales, the largest in its history ((Nolan & Kotha, 2007)). Analysts are crediting its profit growth and margin control to improvement in its supply chain efficiencies. Harley holds a 46% market share in heavyweight motorcycles in the US. The company sponsors a club for its customers, known as the Harley Owners Group (HOG) that allows the company to do direct market research and solicit ideas for product development and testing from 600,000 members. In 2002, the company produced 28 models
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