The "Harley-Davidson: Preparing for the Next Century" case study focuses on how the company has managed the transformation it has engaged into. It highlights the historical achievements of the company over several decades and how it has kept at par with the competition.
Richard L. Nolan and Suresh Kotha
Harvard Business Review (906410-PDF-ENG)
March 14, 2006
Case questions answered:
- Historically, how did Harley-Davidson dominate the US market? Which were the sources of its competitive advantage? At the beginning of ’70 start to emerge a few problems, what was happening to Harley’s internal context? And in the external context?
- Which are the main ingredients of Harley’s transformation process? Which are the most relevant? How do you evaluate Harley’s transformation process?
- Which are the sources of current Harley’s competitive advantage? Which ones, do you think, are sustainable considering the strategy adopted by main competitors? If you were Honda, where do you place Harley-Davidson’s weaknesses? What is “Harley Mystique”?
- Which are Harley’s challenges for entering successfully the 21st century? How do you evaluate Harley’s current strategy? Which suggestion will you give to Jeff Bluestein in the short and medium-long term?
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Case answers for Harley-Davidson: Preparing for the Next Century
1. Historically, how did Harley-Davidson dominate the US market? Which were the sources of its competitive advantage? At the beginning of ’70 start to emerge a few problems, what was happening to Harley’s internal context? And in the external context?
Harley-Davidson history overview:
♦ 1903-1920: from 50 Motorcycles to 28000. The company started in a garage, eventually building a reputation.
o Competitive advantage factors: Walter Davidson winning a race in 1908 and pioneering innovations, namely the famous V-Twin Engine and many others.
♦1920-50’s: largest motorcycle company in the world, after quantity came quality. In the after-war, they were the leader holding a 60% market share, but sales declined since they started feeling pressure from EU import.
o Competitive advantage factors: improved quality thanks to standardized components
♦50’s: HD keeps consolidating the strong “image and lifestyle” approach to marketing thanks to HD being used by the army, US Police, and Hollywood stars. Driving an HD symbolizes toughness, life on the edge, rugged individuality, and patriotism. US market was inevitably dominated by this image and HD motorcycles.
o Competitive advantage factors: The Harley-Davidson Mystique.
♦ ’60s: Honda first, followed by other Japanese manufacturers, enters the US market covering an untapped customer segment not well suited for heavily muscled motorcycles. Market share starts declining for Harley-Davidson.
♦ ’70s: Japanese manufacturers accounted for 33% of the market share. After 50cc and 250cc they entered the heavyweight segment in 1975 with the 1000cc Goldwing. HD shares declined by 80% in this period, also due to a failed attempt of monkeying Japanese strategy increasing supply to meet demand. Indeed, AMF bought the company and increasing productivity dramatically reducing the quality of HDs trying to meet high demand, eventually alienating the remained loyal customers. HD also tried a Joint Venture with Italian Aermacchi to produce lighter motorcycles, but it did not work well. The strategy was misaligned with the internal culture and the company was not prepared to produce that much.
♦ ’80s: profitability down, quality, and market share at historical minimums, highly-leveraged buyouts by managers of the company were the only solution to aim at survival after the disastrous experience under AMF management. Creating a HOG program (see later) to increase customer loyalty
♦ ’90s: trying to reach younger men and women, they created other programs as Rider’s Edge to leverage on HD brand and increasing market share. They also purchased Buell to acquire knowledge of less expensive products. They also introduced new models.
2. Which are the main ingredients of Harley’s transformation process? Which are the most relevant? How do you evaluate Harley’s transformation process?
To complete a successful transformation, senior managers visited Honda’s plant in Ohio during the ’80s. There, they understood the power of Just in Time production philosophy, developed by the Japanese after WW2.
Mainly due to the scarcity of resources and the need of re-starting an economy with most of the factories bombed, the Japanese managers in the 80s had 30 years’ experience with low inventories, pull-demand-based production lines and highly committed employees. Quality and quantity as outputs were the inevitable consequences of such good management.
Harley-Davidson’s executives compared Honda’s production systems with their one. HD’s philosophy was flawed. They pushed production and put pressure on employees to produce more, investing in useful and costly IT systems for inevitably filled WIP inventories, with the final aim of quality testing the motorcycles with half of them failing it.
As a consequence, the Productivity Triad program was created. Being inspired by the Japanese’s JIT, HD’s American version included…