Transcript Strategic Audit of HD

Strategic Audit of Harley-Davidson
Case 16
Strategic Management MGMT 436
Group 5
Current Situation Jw
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
 Policies
Customers 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
A. Board of Directors
DIRECTORS
Barry K. Allen
JOB TITLE
Senior Advisor to
Providence Equity
Partners President,
Allen Enterprises, LLC
Richard I. Beattie
Chairman of Simpson
Thacher & Bartlett LLP
Jefferey L. Bleustein
Chairman of the Board
Harley-Davidson, Inc.
Executive Chairman,
Akamai Technologies,
George H. Conrades
Inc.
NOMINATING
AND
HUMAN
CHAIRMAN
CORPORATE
RESOURCES
OF THE DATE OF BOARD GOVERNANCE
AUDIT
COMMITTE
OTHER
BOARD COMMENCEMENT COMMITTEE COMMITTEE
E
DIRECTORSHIPS
X
May-92
Aug-96
X
X
Fiduciary
Management
BCE Inc.
X
Heidrick &
Struggles
International
Inc. Evercore
Partners Inc.
X
Jun-97
May-02
X
X
Akamai
Technologies,
Inc. Oracle
Corporation.
Ironwood
Pharmaceutical
s, Inc.
Judson C. Green
Vice Chairman, NAVTEQ
Nov-04
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
DreamWorks
Animation. Aon
Corporation.
X
X
X
George L. Miles, Jr.
Chair, Chester
Engineers, Inc.
Aug-02
X
X
James A. Norling
Chairman of the Board,
GlobalFoundries Inc.
Dec-93
X
X
James L. Zeimer
President and CEO,
Harley-Davidson, Inc.
2004
Jochen Zeitz
Chief Executive Officer
and Chairman of the
Board, Puma AG
Aug-07
Macy’s Inc.
WESCO Intn’l
Inc. EQT
Corporation.
American
International
Group, Inc. HFF,
Inc.
CFO HarleyDavidson
X
X
Puma AG. PPR.
B.Top Management
Names
Title
Motor Company
Leadership
Names
Title
Joanne M. Bischmann
VP, Marketing
Steven R. Phillips
VP, Quality, Reliability and Tech
Services
David P. Bozeman
GM, Powertrain Operations
Harold A. Scott
VP, Human Resources
James M. Brostowitz
Leroy Coleman
VP, Treasurer
VP, Advanced Operations
Patrick Smith
W. Kenneth Sutton Jr.
GM, General Merchandise
VP, engineering
Rodney J. Copes
VP & GM, Powertrain Operations
Michael van der Sande
Managing Director, HD Europe
William B. Dannehl
William G. Davidson
VP, North American Sales and Dealer Services
VP, Chief Styling Officer
Jerry G. Wilke
VP, Customer Relationships and
Product Planning
Karl M. Eberle
VP & GM, Kansas City Operations
Corporate Officers
Harley-Davidson, Inc.
Robert S. Farchione
GM, Parts and Accessories
James L. Zeimer
President and CEO
Fred C. Gates
GM, York Operations
Thomas E. Bergmann
Executive VP and CFO
James E. Haney
VP, Chief Information Officer
Gail A. Lione
VP, General Counsel and Secretary
Michael P. Heerhold
Timothy K. Hoelter
GM, Tomahawk
VP, Government Affairs
James M Brostowitz
VP, Treasure, Chief Accounting
Officer
Ronald M Hutchinson
VP, New Business
Harley-Davidson
Financial Services Leadership
Michael D. Keefe
VP & Director Harley Owners Group
Lawrence G. Hund
VP, Operations, CFO
Kathleen A. Lawler
Lara L. Lee
Matthew S. Levatich
VP, Communications
VP, Enthusiast Services
VP, Materials Management
Kathryn H Marczak
Saiyid T. Naqvi
VP, Chief credit and Administrative
Officer
President
Gail A. Lione
VP, General Counsel
Beull Motorcycle
Company Leadership
James A McCaslin
President and COO
Erik F. Buell
Chairman and Chief Technical
Officer
Jefferey A Merten
Louis N. Netz
John A Olin
Managing Director, Asia Pacific and Latin America
VP & Director, Styling
VP, Controller
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 Davidsons 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 Environment
STEEP
Category
ISSUE
Threat/Opportunity
Ranking
Economic
Rising Fuel prices
Threat
1
Pending recession
Threat
2
Double 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
Creation of www.harley-davidson.com in 2001
Opportunity
2
Just-in-time Inventory
Strength
1
U.S. and Foreign environment control (EPA)
Threat
1
National Traffic and Motor Vehicle Safety Admin. (NHTSA)
Threat
2
Rider Training and Safety
Strength
1
Technological
Political-Legal
Sociocultural
EFAS Table (John Taylor)
External Factors
WEIGHT RATING
WEIGHTED
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
Rising Fuel Prices
0.3
1
0.03
Steady sharp rise in fuel prices since 9/11
Pending recession
0.2
2
0.4
Consumers may keep aging motorcycles or wait to
purchase
0.06
Stricter Government environmental controls add to cost
of production.
Threats
U.S and Foreign environment controls (EPA)
0.03
2
Stricter Government environmental controls add to cost
of production.
National Traffic and Motor Vehicle Safety
Admin
0.03
Total Scores
1
2
0.06
2.28
4. Internal Environment
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 Systems
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 Objectives
1. 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.
V. SFAS Matrix (John Lerch)
Duration
Inter
Rating
Weighte
d
Sc
or
e
Weigh
Strategic Factors
t
m
e
d
i
a
t
e
Short
S4 Acquiring Buell
0.2
5
1
S1 Self Reliable Financially
0.15
5
0.75
W4 Seasons
0.1
4
0.4
W1 Baby Boomer Era Ending
0.15
2
0.3
W2 Competition with several Japanese
Companies
0.15
2
0.3
O3 Addition of Buell Motorcycle Line
0.2
5
1
X
O2 Double digit growth in international market
0.1
4
0.4
X
T2 Pending recession
0.2
2
0.4
T1 Rising Fuel Prices
0.3
1
0.03
Long
X
X
X
Drive sales up with more options
Could possibly end but lenders would step in
X
X
Comments
X
Create sales spikes and drops
Drove sales
X
X
Cost more to own and repair
Soaring Profits from adding the Buell line to H.D. dealers
Growth doubled in international dealer network for
2007
X
X
Consumers may keep aging motorcycles or wait to
purchase
X
Steady sharp rise in fuel prices since 9/11
VI. Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
(Shavera Leveille)
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.
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.
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
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