Harley Davidson, the brand motorcycle of the Americans, had seen the best and the worst in the span of a couple of decades. It has been rightly said that there is no other product which were tattooed by the people in their bodies. When the company was started by Arthur and Walter Davidson along with William Harley, it was just a private affair among these founders. But, with pioneering technologies being brought in by the company such as V twin engine, clutch, internal expanding rear brake, and three speed transmission, company had brought in a name for itself in a short span. Within a decade of this, the company was the world's largest motorcycle manufacturing company. And, it even outperformed its competitors when the whole world was suffering from a setback in the economy in 1920's. The huge investment during this phase on Research and Development brought laurels for the company as it was able to innovate in some new upfront technologies like Electric starter, Balloon tires, front brakes, and standardized parts. This helped the company is drastically improving the quality of the products being marketed by the company.
Post world war-II era
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However, as if this feat was not enough, there sales managed to decline in the era of post world war -2. But, then new innovations in the size of the engine allowed the company to have a sizeable advantage over others. These new engines were an instant hit among the customers, further making the company as certain leaders of their industry.
The image of the motor cycle was that of raw power due to the looks it adopted. This was made possible due to the V twin engine that made it full of power. Another key feature was that of the sound of the bike which was more like a thump rather than some motor cycle. The company also introduced some new colours, decals and designs making it more of a lifestyle brand. The name of the company spread through its users which were mostly military officers, Police officials and Hollywood stars. Until this time, the whole of the wind was in the favour of Harley Davidson Company.
Emergence of Japanese companies:
But, then enters the Honda Company into the U.S. market which was attracted here due to its massive customer base. Honda fortuitously unravelled a segment in the U.S. market which was missed by the Harley Davidson makers, i.e. young females and older males. This discovery was a blessing in disguise for Honda Company. Since, the image of Harley Davidson was that of a rough and tough look, Honda approached with a more familiar and gentle style to promote their brand. Their main key to success was to develop the brand name step by step in each and every segment. To begin with, they started with a silent, small but fast and cheap motor-cycle which was then followed by their entry into different segment that of 250 cc.
The motor cycle industry was booming the 60's and early 70's, which was reaped up-to maximum by Honda, making it the largest share holder of the U.S. motor cycle market. The problem faced by Harley was that it was soon to be put among bikes that belonged to niche class, due to the dropping sales figure of the company. This even forced the company to go public after 60 years of its launching, but the investors had little faith left in the motor cycle brand. The company was going through lots of troubles and was thus taken over in a friendly bid by AMF which was one of the heavy industrial conglomerates.
Takeover by AMF:
Since the takeover of the company by the AMF, the issue that was felt by the CEO was the lack of production. Thus, by putting in the much needed capital, it was able to drastically increase its production levels from 15,000 to 70,000 within a span of 4 years. On top of that, less skilled staff was allocated on the production lines which further affected the quality of the product. It is said that this was the lowest time that company had ever experienced in terms of quality. The production drawings being used by the company to make the motor-cycle were not perfect and even after that the tolerance level of each component was left unspecified.
Always on Time
Marked to Standard
Now was the time when Honda came head to head with Harley Davidson, by launching a 1000 cc bike, Goldwing which was regarded as one of the most technically superior bikes of that time. On top of that, Motor cycle industry faced crisis in 1970's making the life tough for all the motor cycle manufacturers. Now, whole of the industry had to fight for a smaller share of the market and the key was to grab the largest share of that pie. During this period, Honda motors was constantly launching new motor cycles putting the pressure on the Harley Davidson, which then led to the drop of its market share by up to 80 %.
This was the time when Harley Davidson experienced the worst period, when the company was looking to be sold and apparently found no buyers. To go deep into the problem, the managers of Harley Davidson visited the Ohio plant of Honda. To their astonishment, they were amazed to see the cleanliness and organization of work at production lines. The production lines of Harley Davidson were littered with materials. The key to success for Honda was a system named Just-In-Time which reduced the inventory levels to bare minimum and required no automation or computer along. Rather, it would be better to say that the motor-cycles were built on order rather than to sell it directly. This was just opposite to the situation of Harley Davidson where the inventory level was always very high and the computer system used to control it costs a multi million dollar. The flaw that was found out was that the workers not empowered enough as well since they were just responsible for quantity and not quality.
This forced the management of Harley Davidson to go through a drastic transformation. To begin with, empowerment was handed to the workers that were on production lines which stressed on quality. Also, on the terms of Just-In-Time, a system was launched by the company named MAN (materials-as-needed) which focussed on reducing the inventory levels of the company. And, finally, the employees were properly trained on as to how to detect the flaws in the product and repair them straight away. During this phase, Harley Davidson also required tariff protection from the government which further helped them out. This transformation helped the company to turn around their fortunes and the results were visible quickly. Inventory levels were reduced, revenues shot up and a fair gain was seen in the operating profits of the company coupled with an increase in the market share. This was the time that the company decided to go public and it was welcomed on the stock exchange.
Now, the company was being transformed from an informal organization to a formal organization. The staffs that were found not adding value to the company were sacked and powers were given to the lower level staff, thus reducing the hierarchical problems in the system. This was then followed by a change in pay system which then became the pay for performance. The senior staff asked the staff to come up if they felt that they needed some sort of training. Also, the less skilled workers working on production lines were explained a bit about sales and profitability which further enriched their job profile.
Penetrating new segment:
Harley riding on this success wagon acquired Buell Motorcycle Company, which had a consumer base in "Performance" segment. The motor-cycles manufactured by Buell were racing bikes with an engine of Harley. Also, apart from this, they made another motor cycle that costs less so as to cater to the needs of young consumers with a small budget.
Having a look at the growth rate of company, few analysts doubted the company so as to sustain this growth rate for the coming years. They were of the view that the growth rate for heavy weight motor cycles was less and it is gradually maturing. Another concern for Harley Davidson was, the age of its user, which was quite big which indicated that it was more popular among the older generations or referred to as baby boomers. This would cause problem for the company in the future when this customer base would be old enough not to ride the bike. Thus, now their job increased as it had a tedious job to target the youth, meaning heads on with Honda.
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In order to compete with Honda Motors, Harley Davidson launched VR-1000 coupled with new technologies, including, fuel injection, overhead cams and liquid cooling system in comparison to the previous air cooled system. This bike was made to compete in the performance segment. The bike had V-rod so as to appeal to the younger American generation and Young Europeans. This innovation by the company gave it an advantage over others as this meant that it can now accelerate better than others on each gear. Although this was a risky step, since if taken wrong this step would have alienated the existing consumer base of the company. Apart from this, the company also tried to capture the stronghold base of Honda, i.e., Young generation and Women riders. The company introduced the cheaper bikes that would appeal to the new base. So as to attract this customer base, Harley Davidson sponsored the events that were relevant to their new target customer base consisting of young riders and women riders.
Another event that turned the sides towards Harley Davidson was to rent the bikes so as to allow the consumers to get a feel of riding the bike. This was an instant hit among the consumers. The records of the company showed that the 32 % of the customers bought a bike or placed an order after their rental programs and another 37% planned to buy in a year's time. But, this program needed a huge infrastructure to be set up.
Growing at a rapid pace, the company revised its production targets and reduced its earnings expectations, which was followed by a huge drop in the prices of shares of the company. This sent a negative signal into the investors.
But, overall, the company has seen their performance increasing rapidly with the application of transformations in the set-up or operation style so as to increase its efficiency.
Comparison and contrast with Japanese firms:
Other key competitors that entered the States market were Yamaha, Kawasaki and Suzuki motors. All of these motor corporations entered U.S. in the 1960's along with Honda motors. Yamaha started in U.S. by selling its motor cycles in the market through dealers. The company knew that the key to survive in the market would be to keep innovating the technologies in the motor-cycles. In 1963, the company developed an auto-lube system which included a separate oil injection system eliminating the job to mix the fuel and oil in advance. The company was growing by being associated with great quality and its advancement in the technology. This was the time when Yamaha introduced DT-1 known as a trail bike which was an innovative and new concept brought in by great visionary. The company wanted to make its mark around the world and was thus expanding on both the sides of the world, i.e. east and west. The key problem with Harley Davidson was their lack to put in the new technology in the bikes and thus trying to enter new segment. Also, the company compromised on the quality when the new management came in 1970's. This defamed the brand name of the organisation, thus pushing it back from the competition. (http://www.yamaha-motor.com/corporate/foundinghistory.aspx)
Part 2: If you were a senior manager in the organisation, what would you have done differently? Evaluate the circumstances of the company and justify the stand that you have taken.
If I were a senior manager in Harley Davidson, I would have tried to enter all the different segments of the society whilst maintaining the stronghold of the organization in its key segment, i.e. raw bikes. The first problem that the company faced was that with the entry of Honda motors in the U.S. market. When a competitor comes into the market, it starts with being a small player in that market, but eventually becomes big. When Honda was trying to woo a segment which was left unexplored by the company, I would have immediately jumped into action by suppressing them in the initial stages by launching a product that would compete with their product and give them a fight in their targeted segment. It is after gaining success in this segment, that they went onto become huge players. This need could have been fulfilled by effective management of Research and Development. The main purpose of R & D is to balance the needs of the organization with that of the market. The key job of the Research and development is to attain different technological innovations with a specified risk frame and costs. No management would like to support endless finances to a project with endless risks. One of the essential elements to the success of this department is the intuition of the guide leading the department. They are the ones to decide as to what to make, when to make and how to make and when to introduce it to the market. (Roussel, Saad, Erickson, 1991)
The key to successfully manage the R & D department is the effective and successful management of technological innovations of the company. Winter (1987) referred that with the use of knowledge, dexterity and proficiency comes problem which is to be faced heads on. Prahlad and Hamel (1990) were of the view that in this ever transforming world, no firm expects to survive in a stable market. But, to succeed in a dynamic environment, the company should be aware of its key competencies and should be able to bring its past experience into play. Any innovation before being undertaken has to be properly assessed as to whether it would be relevant to the organization in achieving its goals in long term apart from being financially sustainable.
Another key problem that the company faced with the onset of a new management coming into action was of reduced quality levels of the product. The new management came into action without judging the nature of the problem and started by increasing the levels of production drastically with the influx of the finance. They felt that the company was just suffering with the lack of capital and was thus being termed as a failure. Had I been the manager in the new management in Harley Davidson, I would have first analysed the current situation of the market and then take necessary action. This can be done by doing the SWOT analysis. The key to do this analysis is to judge the situation of the company which includes Strengths, Weaknesses, Opportunities and Threats. This is quite a common step used by the managers and entrepreneurs in order to gain competitive advantage over others. The strategies that can be dealt with this method are Corporate level strategy, to add value to an organization by managing growth and development, Business level strategy, to become competitive in an industry by gaining opportunities and reducing threats, and Functional level strategy, to increase the capability of the departments. (Jones and George, 2004)
Thus before increasing the production levels of the company, I would have done a research on the reasons of its failure and which are the departments where it can excel. This would have certainly taken some time but its better to be safe than to be sorry.
The third problem faced by the organization was that of drop in the quality levels of the company. Due to the reckless production being undertaken, the management overlooked the quality of the products which further defamed the name of the company. Had I been in the position of the manager, I would have never compromised on the quality, because even before the effect of any advertisement begins to happen, the word of mouth has already finished its work. Thus, quality of the product can never be overlooked. I would have brought in Just in Time like the Honda motors in the organization. This would have ensured that the inventory levels in the organization remains at a bare minimum level. Apart from this, another effective tool so as to improve the quality of the system would have been six sigma approaches. This approach was started by Motorola in 1981. The technique used by this approach is to identify and remove the defect causing elements thus ensuring that the product being made is perfect and up to the mark. The methods used by the six sigma approach are DMAIC and DMADV. DMAIC means Define, measure, analyze Improve and control. While, DMADV means that Define, measure, analyse, design and verify. Six sigma approaches follows a systematic approach to be effectively implemented. This would help the organization in gaining significant advantage over its competitors. (Pande and Holpp, 2002)
Another approach that i would have followed was of continuous improvement, i.e. termed as Kaizen in the business world. This process refers to continuous improvement in all the processes of the business, i.e., administrative, operational, support and rest. When the continuous improvement is being talked upon, then it requires the concern from the top brass to the line workers and their continuous efforts. The main aim of this method is to minimize the levels of wastage. The main five elements that constitute of Kaizen are team work, personal discipline, improved morale, quality circles and suggestions for improvement. All of these functions complement each other and thus even if one of them is missed, other functions serve no purpose. (Tozawa and Bodek, 2001)
Apart from these problems, I would have loved to expand my base of operation into European countries so as to increase the value of the organization and the share holders. This would have been done slowly and steadily. The level of communication between the top brass and the lower staff should be increased, because they are the ones who are working on the line and are thus the first ones to know about any kind of concerned problem. The staff should be adequately trained so as to handle different job profiles among the organization which would give them a chance to excel in their life and feel good about themselves. Also, in order to effectively increase the customer base, any new segment product should be brought about at a cheap rate so as to effectively penetrate the product into the market. This would be further supported by sponsoring the key events related to that segment which would earn laurels for the company.