Strategic Audit of Harley-Davidson

Case 16 Strategic Management MGMT 436Group 5

Current Situation (Jw Hayes) A. Current Performance 2008

Revenue 2008 $5.59 billion down from $5.73 billion in 2007

Net Income $654.7 million down from $933.8 million in 2007

Earnings per stock share $2.70 down from $3.74 in 2007

Motorcycles sold 303,470 down from 330,619 in 2007

http://investor.harley-davidson.com/ReleaseDetail.cfm?ReleaseID=360949

B. Strategic Posture Mission

We ride with our customers and apply this deep connection

in every market we serve to create superior value for all of our

stakeholders.

Objectives We fulfill dreams inspired by the many roads of the world by

providing extraordinary motorcycles and customer

experiences. We fuel the passion for freedom in our

customers to express their own individuality.

Strategies

Get Cost structure correct

Obtain funding for Harley-Davidson Financial Services

Invest in the Harley-Davidson Brand

PoliciesCustomers for life….

Harley-Davidson values the deep emotional connection

that is created with our customers through our products,

services and experiences. We are fueled by brand loyalty

and trust that our customers place in us to deliver premium

quality and the promise of a fulfilling lifetime ownership

experience. We exemplify this commitment by embracing

a culture of personal responsibility and stewardship for

quality in everything we do.

2. Corporate Governance (Jw Hayes)

A. Board of Directors

DIRECTORS JOB TITLE

CHAIRMAN OF THE

BOARD DATE OF BOARD

COMMENCEMENT

NOMINATING AND

CORPORATE GOVERNANCE COMMITTEE

AUDIT COMMITTEE

HUMAN RESOURCES COMMITTE

EOTHER

DIRECTORSHIPS

Barry K. Allen

Senior Advisor to Providence Equity Partners President,

Allen Enterprises, LLC X May-92 X

Fiduciary Management

BCE Inc.

Richard I. BeattieChairman of Simpson Thacher & Bartlett LLP Aug-96 X X

Heidrick & Struggles

International Inc. Evercore Partners Inc.

Jefferey L. BleusteinChairman of the Board Harley-Davidson, Inc. X Jun-97

George H. Conrades

Executive Chairman, Akamai Technologies,

Inc. May-02 X X

Akamai Technologies,

Inc. Oracle Corporation.

Ironwood Pharmaceuticals

, Inc.

Judson C. Green Vice Chairman, NAVTEQ Nov-04 X X

DreamWorks Animation. Aon

Corporation.

Donald A. James

Co-founder, equity owner and Chairman and Chief Executive

Officer of Deeley Harley-Davidson

Canada/Fred Deeley Imports Ltd. May-91

Sara L. Levinson

Former Non-Executive Chairman of ClubMom,

Inc. Feb-96 X X Macy’s Inc.

George L. Miles, Jr.Chair, Chester Engineers, Inc. Aug-02 X X

WESCO Intn’l Inc. EQT

Corporation. American

International Group, Inc. HFF,

Inc.

James A. NorlingChairman of the Board,

GlobalFoundries Inc. Dec-93 X X

James L. ZeimerPresident and CEO,

Harley-Davidson, Inc. 2004CFO Harley-Davidson

Jochen Zeitz

Chief Executive Officer and Chairman of the

Board, Puma AG Aug-07 X X Puma AG. PPR.

Names Title Names Title

Motor Company Leadership Kathleen A. LawlerVP,

Communications

Corporate Officers Harley-Davidson, Inc. Lara L. Lee VP, Enthusiast

Services

James L. Zeimer President and CEO Matthew S. LevatichVP, Materials Management

Thomas E. Bergmann Executive VP and CFO Gail A. LioneVP, General

Counsel

Gail A. LioneVP, General Counsel and

Secretary James A McCaslin President and COO

James M BrostowitzVP, Treasure, Chief Accounting Offi cer Jefferey A Merten

Managing Director, Asia Pacific and Latin America

Joanne M. Bischmann VP, Marketing Louis N. NetzVP & Director,

StylingDavid P. Bozeman GM, Powertrain Operations John A Olin VP, Controller

James M. Brostowitz VP, Treasurer Harold A. ScottVP, Human Resources

Leroy Coleman VP, Advanced Operations Patrick SmithGM, General Merchandise

Rodney J. CopesVP & GM, Powertrain

Operations W. Kenneth Sutton Jr. VP, engineering

William B. DannehlVP, North American Sales

and Dealer Services Michael van der SandeManaging Director,

HD Europe

William G. Davidson VP, Chief Styling Offi cer Jerry G. Wilke

VP, Customer Relationships and Product Planning

Karl M. EberleVP & GM, Kansas City

Operations Harley-DavidsonFinancial Services

Leadership

Robert S. Farchione GM, Parts and Accessories Lawrence G. HundVP, Operations,

CFO

Fred C. Gates GM, York Operations Kathryn H Marczak

VP, Chief credit and

Administrative Offi cer

James E. Haney VP, Chief Information Offi cer Saiyid T. Naqvi PresidentMichael P. Heerhold GM, Tomahawk

Timothy K. Hoelter VP, Government Affairs Beull MotorcycleCompany

Leadership

Ronald M Hutchinson VP, New Business Erik F. Buell

Chairman and Chief Technical

Offi cer

Michael D. KeefeVP & Director Harley Owners

Group Jon R. Flickinger President and COO

External Environment (John Taylor)

A. Natural Environment• Rising gas prices will affect transportation

and shipping costs, negatively affecting company profits. Some consumers will not buy another vehicle to put expensive fuel in while others may buy a motorcycle for better gas mileage during higher prices.

External Environment (John Taylor)

-North American market is steady and the international market is growing. Numbers reflected that sales in the foreign

markets were... 19% in 2005, 20% in 2006, and 27% in 2007 of Harley Davidson's overall sales.

--Constant rising gas prices since the Terrorists attacks on the US in 2001, have a continued impact on sales and the cost of

production and overall company profits.

Rivalry High.. Competition Motorcycle manufacturers continue to improve designs and provide a competitive market for Harley Davidson to compete for new consumers.

. Buyers Power High, With many 30 different models of Harley's ranging from $6,695-$20,645 and 8 models of Buell Bikes

from $4,695-$11,995, consumers have many options of finding the bike that meets their needs while staying in their price

range

Distributors Power High. Harley-Davidson has 684 independently –owned full-service dealerships, 307 of them which are

combined H.D. and Buell Dealers. As of 2007, 370 Independent H.D. Dealerships and distributors serving 32 European

Countries. 323 of which were combined H.D. and Buell dealers. A new dealership coming to South Africa in 2008.

Threat of Substitutes Medium. Honda is a big competitor of motorcycles from small “crotch rockets” and large cruising and touring bikes.

External Environment (John Taylor)

B. Societal EnvironmentSTEEP

Category ISSUE Threat/Opportunity Ranking

Economic Rising Fuel prices Threat 1

Pending recession Threat 2Double digit growth in international dealer network during 2007 Opportunity 4

Planned opening of dealership in S. Africa Opportunity 3

Addition of Buell motorcycles to H.D. dealerships Opportunity 5

Technological Creation of www.harley-davidson.com in 2001 Opportunity 2

Just-in-time Inventory Strength 1

Political-Legal U.S. and Foreign environment control (EPA) Threat 1

National Traffic and Motor Vehicle Safety Admin. (NHTSA) Threat 2

Sociocultural Rider Training and Safety Strength 1

External Factors WEIGHT RATINGWEIGHTED

SCORE COMMENTS

Opportunities

Double digit growth in international market 0.1 4 0.4 Growth doubled in international dealer network for 2007

New dealership in S. Africa 0.1 3 0.3 New dealership being built in South Africa in 2008

Addition of Buell motorcycle line 0.2 5 1 Soaring Profits from adding the Buell line to H.D. dealers

E-commerce, online catalog 0.03 1 0.03 www.harley-davidson.com developed in 2001

Threats

Rising Fuel Prices 0.3 1 0.03 Steady sharp rise in fuel prices since 9/11

Pending recession 0.2 2 0.4Consumers may keep aging motorcycles or wait to

purchase

U.S and Foreign environment controls (EPA) 0.03 2 0.06Stricter Government environmental controls add to cost

of production.

National Traffic and Motor Vehicle Safety Admin 0.03 2 0.06

Stricter Government environmental controls add to cost of production.

Total Scores 1 2.28

EFAS Table (John Taylor)

4. Internal Environment (Nick Schnabel)

A. Corporate Structure · Business segments:

• Motorcycles and related products and Financial Services.

• The decision-making procedure within Harley-Davidson is

decentralized according to which department is the most

appropriate to address certain issues or to make the

decisions.

.

B. Corporate Culture • Harley-Davidson values the deep emotional connection that is created

with our customers through our products, services and

experiences.

• Promote stronger bonding between the top management and the non-

management workers by implementing the FISH philosophy

throughout the entire company.

• Harley-Davidson promotes fairness, financial transparency and

accountability to all our shareholders

C. Corporate Resources (Travis Toborg)

Marketing

Marketing was divided into several different areas that are common for most all

companies. These Areas included Dealer promotions, Customer Events, Magazines,

Direct Mail advertising, Public Relations, Cooperative Programs with Harley/Buell, and

TV commercials. You will also see Harley promotions at several popular sporting

evens such as racing and even UFC.

Finance

In 1985 Harley-Davidson was 4 hours from shutting there doors. Citicorp, Harleys

main lender denied lending money in 1985 but with only 4 hours remaining to find a

lending company, Harley made a deal with Heller Financial and managed to save the

company. At this current time it is now funded by HDFS (Harley-Davidson Financial

Services). Which is a lending company for Harley-Davidson motorcycles among

several other helping factors. This means the company basically now funds itself.

R&D

Harley feels that research and development of there custom and touring

motorcycles is a large part of the way they compete against the competition. They spent

$178.5 million in 2005, $177.7 million in 2006, and $185.5 million in 2007 in areas such

as style, purchasing, and manufacturing.

Operations

Harley-Davidson has 684 dealerships in the U.S. and of those 307 were also

Buell dealers. Their are 104 Secondary Retail Locations (SRL's), 68 Alternate Retail Outlets

(ARO's), and 12 Seasonal Retail Outlets (SRO's). This makes the US the largest supplier in

sales of Harley-Davidson motorcycles.

22% of the companies sales came from foreign Operations in Europe/Middle East/Africa

at 370 dealers with 323 being combined with Buell, Asia-Pacific 130 Harley dealers with

57 selling both brands, Latin America with 31 dealers none of which also sold Buell's, and

Canada which has 75 dealers, 45 of which sell both brands of motorcycles.

Human Resources

Approximately 50% of the manufacturing employees of Harley-Davidson's

own Harley's themselves and buy from dealerships so they have first hand experience

with what they are contributing too as a work force. There are roughly 9,000

employees of Harley-Davidson

Information SystemsNone

V. Analysis of Strategic Factors (John Lerch)

• A. Situational Analysis (SWOT)

• Strengths• Acquiring Buell

• Financial Self Reliability

• Weaknesses• Seasons

• Baby Boomer Era Ending

• Competition with Several Japanese Companies

• Opportunities• Addition of Buell Motorcycle Line

• Double Digit Growth in International Market

• Threats• Pending Recession

• Rising Fuel Prices

V. Analysis of Strategic Factors (John Lerch)

B. Review of Current Mission and Objectives1. Harley Davidson’s Mission and Objectives focus on the customers and the acquisition of Buell falls in line with the mission.

2. They should continue on with current

mission and objectives and seek ways to continue capitalizing on the international market.

Duration

Strategic FactorsWeigh

t Rating

Weighted Score Short

Intermediate Long Comments

S4 Acquiring Buell 0.2 5 1 X Drive sales up with more options

S1 Self Reliable Financially 0.15 5 0.75 X X Could possibly end but lenders would step in

W4 Seasons 0.1 4 0.4 X Create sales spikes and drops

W1 Baby Boomer Era Ending 0.15 2 0.3 X X Drove sales

W2 Competition with several Japanese Companies 0.15 2 0.3 X Cost more to own and repair

O3 Addition of Buell Motorcycle Line 0.2 5 1 X X Soaring Profits from adding the Buell line to H.D. dealers

O2 Double digit growth in international market 0.1 4 0.4 X Growth doubled in international dealer network for

2007

T2 Pending recession 0.2 2 0.4 X XConsumers may keep aging motorcycles or wait to

purchase

T1 Rising Fuel Prices 0.3 1 0.03 X Steady sharp rise in fuel prices since 9/11

V. SFAS Matrix (John Lerch)

VI. Strategic Alternatives and Recommended Strategy (Shavera Leveille)A. Strategic Alternatives

1. Stability Strategy: Pause/Proceed with caution. Analyze the effects the recession will

have on the company then react accordingly.

a. Pros: Acknowledgment of areas that are weak and need improvement. The

profit strategy would not beneficial it only masks the issues instead of confronting

them.

b. Cons: Strong Competition from competitors that are larger, established, and

more diversified.

2. Growth Strategy: Horizontal growth strategy; concentric diversification, strategic

alliance, and joint ventures. Target new market segments by developing products and

services for females and younger bikers both domestically and internationally.

3. Retrenchment Strategy: Turnaround strategy; close down unprofitable foreign

plants and consolidate operations.

a. Pros: Allows for concentration on business segments and plants that are profitable.

Prevents further losses.

b. Cons: Hinders growth

B. Recommended Strategy

a. Pros: New markets would help increase customer base, brand loyalty, and

profitability.

b. Cons: The new market segments may not be able to afford the products and

services offered. Strategic alliances and joint ventures may result in loss of control

over operations, conflicts, and higher risks.

Recommend alternative #2 which is growth for Harley-Davidson. The current customers

are mainly comprised of the Baby Boomers. Harley-Davidson Inc. may benefit from

recruiting younger customers to possibly build lifetime customer loyalty that can be

passed down to younger generations. Women are also a great market segment to target

because research shows that the number of female riders has risen significantly over the

past few years. Concentric diversification, strategic alliances and joint ventures enable

entry into foreign markets, knowledge of local conditions, sharing of costs, resources,

and assets. Although, the company is facing a recession the costs of Harley-Davidson

products and services should not be reduced, but rather competitively priced so that

quality is not sacrificed