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This report aims to evaluate the strategic options available to the Harley Davidson organization. Harley Davidson Inc. has two operational segments, motorcycle and financing. Harley Davidson Financial Services (HDFS) offers loans, cycle insurance and protection plans to meet the needs of their owners, whilst the motorcycle segment designs, produces and markets primarily heavyweight touring, custom and performance motorcycles. It also manufactures motorcycle parts and accessories, gear and apparel. The company is the only major American producer of motorcycles and operates globally, with sales mostly in North America, Europe, Asia/Pacific and Latin America.
Although in the past the company has experienced growth and continued success, attributed to its brand loyalty, in 2009 Harley Davidson (H-D) had to shut down and consolidate factories due to the effects of the recession and the fall of the US housing market.
Strategic options can only be developed after the company's strategic position is known. Thus the first section of the report uses tools and concepts to determine H-D strategic position. In light of the company's strategic position strategic options are then formulated; this is presented in section 2. The third section of the report then uses the success criteria model presented by Johnson, Scholes and Whittington in corporate strategy, as a basis to evaluate the strategic options presented and recommendations are made.
THE STRATEGIC POSITION OF HARLEY DAVIDSON INC.
This section of the report is concerned with understanding the strategic position of Harley Davidson Inc. in an attempt to formulate strategic options for the company. It first identifies the changes that are occurring in the environment and how these changes affect H-D and its business activities and second the resource strength and capabilities of H-D.
1.1 The Environment
In order to understand the environment which H-D operates in the following frameworks are used with the aim of helping to identify key issues and challenges and ways of coping with complexity and change.
1.1.1 Pestle Analysis
In 2009 H-D stood to gain from the Economic Stimulus Package, passed into legislation by the Barack Obama Administration. "The federal stimulus package gives taxpayers breaks if they purchase a new car, light truck, RV, or motorcycle."(Wachter 2009). In addition, Coachman industries also a manufacturer of leisure vehicles, and a competitor of H-D was eliminated from the New York Stock Exchange.
According to the Datamonitor report:
"the motorcycle industry segment has had economic growth for the past three years, and has only recently been experiencing decline. In 2007 it declined 2.3%, yet is forecasted to recover 4.3% by 2012. An economic factor in favor of H-D, despite this decline, is that the U.S. industry generated total revenues of $10.2 billion in 2007, of which 98.8% were of motorcycles (not scooters, minibikes, etc.). Furthermore, within the U.S. economy H-D holds the majority of motorcycle sales. Therefore, even while industry growth is declining, H-D sales and other motorcycle sales are still continuing to increase."
Figure 1 shows motorcycle industry growth versus sales.
1 Figure 1
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The Motorcycly Industry Council (MIC) discloses that leisure product industries are facing steep decline however the motorcycle segment though declining ,is not doing so at a steep rate. Tim Buche, President of the MIC says " Overall motorcycle sales were down 7.2%, not nearly as sharp a decline as many other consumer products in today's economy/" (Wasef 2009).
Socially H-D has a competitive edge which is owed to its customer base, strong brand loyalty and demographic trends such as the increse in female operators. "This loyalty is indicated in the average age of H-D consumers. H-D average consumer buying age is 42 years old and increasing (Gauvin 2005). H-D aspires to increse it consumer demographics, however "â€¦although the younger generation below 35 years of age has posted the largest gains in owernship, the generation that is on the edge of the baby boomer segment will be the main catalyst of growth for the industry" (Koncept 2007).
One social factor that may negatively affect the sale of H-D motocycles is the stigma that has been attached to these leisure vehicles. Alot of people believe that motorcycles are dangerous and this belief is strengthened due to the high rate of motorcycle fatalities and crashes. H-D stands the chance of escaping this stigmatisation if the public views their bikes as "cruisers" and not "speed bikes".
Technologically H-D can take advantage of antilock brake systems. Antilock brakes could help riders avoid fatal crases according to a study done by the insurance industry.
1.1.2 Porter's Five Forces Model
"H-D operates within the Recreational Vehicles industry along with five other major competitors: Winnebago, Polaris, Thor, Arctic Cat and Marine Products. The top performers within the industry and hold 92% of the market share by volume with a market capitalization of 64.653 Billion of a total Industry of 7 Billion.Other firms in different industries that are direct product rivals include Honda Motor Company Limited, Yamaha Motor Co, Ltd., and Suzuki Motor Corporation" (Appendix 1).
"The presence of these large multinational corporations with exceptionally high assets boosts the degree of rivalry within the industry. Because of the small number of material rivals, the market's revenue is shared between fewer firms and enhances the degree of rivalry for bottom line profit. This rivalry forces most competitors to try and diversify their business models through geographical expansion or vertical expansion, leading to interests and investments in a variety of other segments such as the automobile, watercraft, industrial and farming equipment areas." (Datamonitor 2004).
Threat of Substitutes
"The Recreational Vehicle industry faces threats from the Automobile Industry, from public transportation options and bicycles. The threat is largely dependent on the indispensability of motorcycles and other lifestyle products to the end user."(Datamonitor 2008).
In most developed countries, motorcycles are leisure items and are not a necessity and are therefore largely dispensable or substitutable by more practical items such as cars or more cost effective means of transportation such as bicycles. This lack of necessity increases the threat of substitutes and is one of the major reasons why the external market goes into decline during economic recession.
Overall, buyer power is low due to sustainable competitive advantage of product differentiation which is impossible for other brand competitors to match.
Large multinational corporations such as Harley-Davidson can receive materials from many different international suppliers and face low switching costs due to minimal product differentiation. This presence within the international market boosts Industry leaders' power. Overall, supplier power is moderate.
Threat of New Entrants
Overall, this threat is moderate due to high set up costs, high brand recognition, customer loyalty and high research and development costs.
1.2 Resources Strength and Capabilities
H-D has a formal structure that works for the company: decentralized, expert teams and leadership circles that value employee input. Programs they use to plan, report and track inventory and production include their Supply Management Strategy system (SMS), Vibration Tech & PdM technology systems, as well as their web-based H-D Distribution supplier network that provides vendors with a wealth of information about supply and demand within the company.
The "Harley Triangle" provides a basis for tracking and monitoring the firm's physical resources. Location and Sophistication of management and the expertise of manufacturing personnel and other employees is the key in accessing raw materials, procurement and upkeep related to manufacturing equipment. H-D plants are streamlined and well-maintained, which is a core resource for H-D.
H-D has many technological resources: including many different brand name Patents, Trademarks, and Copyrights which protect its reputation and image.
Trust, Knowledge, Managerial capabilities, as well as organizational culture are H-D's most valuable human resources. The company culture, gives H-D a major competitive advantage. Employees and suppliers know their input is valued and take pride in their work. People involved are passionate about the brand and this adds invisible value to the company.
Employee and supplier, as well as management's ideas are huge resources for H-D, as these people know the business and know its potential. Since there are such a variety of inputs, H-D's capacity to innovate and create/develop new product is not subject to stagnation or groupthink. However, H-D does try to stay true to its niche market, and this creates some boundaries for innovative ideas.
Reputation with customers, brand name, perceptions of product, and reputation with suppliers are all very beneficial to H-D's operations, and keep customers loyal to the product. Interactions and relationships are stressed at H-D in order to ensure quality workmanship and mutually beneficial participation in all stages of production.
Purposely Integrated Technological Resources
H-D ensures that all processes and activities throughout its value chain are integrated using web based SMS systems, barcodes, and reports that enable its JIT inventory flow. This allows production to flow smoothly.
H-D's JIT inventory pull system means that it must have streamlined manufacturing abilities. H-D does this by ensuring quality inputs into its manufacturing plants, flow production methods, and well-maintained equipment. H-D manufacturing plants are capable of producing many different models and base their inventory off of customer pull demand, reducing costs around the board as well as inventory finished products that sit unsold in warehouses (of which H-D has very few).
JIT inventory management needs good transportation flow logistics. H-D has the capability to reduce lead times and ensure pull delivery through its private fleet of trucks and contracts with
The identification of possible directions builds on an understanding of H-D strategic position. The adaptation of Ansoff's product/market matrix is used for identifying directions for strategic development. Development directions are the strategic options available to H-D in terms of products and market coverage taking into account the strategic capability of the company and the expectation of shareholders. (Johnson et al 2005). Figure 6, the adaptation of Ansoff's product/market matrix summarizes the strategic options available to H-D.
Figure 6. Strategy Development Directions
Source: Johnson et al (2005) Exploring Corporate Strategy
H-D can choose one or more of the following options:
It can protect and build on its current position.
It can develop new markets for its products.
It H-D can also develop new products in new markets and
It diversifies into new markets and develops new products.
These options can be pursued through different development methods which are internal development, mergers and acquisitions and strategic alliances. The options chosen has to address the key issues and challenges faced by the H-D, the company must also satisfy stakeholders expectations but most important H-D must have the resources and capabilities to develop the options chosen. In other words the option must be suitable, acceptable and feasible (Johnson et al 2005).