Harley-Davidson Strategic Plan
was founded in 1903 in Milwaukee, Wisconsin. It was one of only two U. S. motorcycle manufacturers to survive the Great Depression. From 1950 to 1980, H-D struggled to survive a difficult time in its history. During those years, they developed a poor reputation for quality and performance.
Were it not for the federal government’s intervention, Harley might have gone out of business. Fear that major U. S. manufacturers like Harley-Davidson would be crushed by foreign competition provoked the government to impose a series of high tariffs.Japanese motorcycles in particular pose a significant threat to Harley’s profitability.
Finally in the late 1980s and early 1990s, Harley was able to recover its image as a quality motorcycle company. Coupled with an improving economy, H-D was able to restore itself to profitability. As the brand became more respected, sales from non-motorcycle paraphernalia took off and now represent a significant portion of the company’s revenues. Strengthened by its recovery, Harley has managed to expand its operations and sales dramatically in recent years.They have expanded their global market extensively to include South America and Asia.
In 2010, they even opened five dealerships in India. Harley strives to stay up with current and emerging trends. They have developed an environmentally friendly stance that center on what they call their “sustainability strategy”. They have been vocal about their efforts to reduce waste in manufacturing as well as promoting the fuel efficiency of their bikes. Harley is involved in a number of initiatives to promote their brand name, such as their collaborative efforts with Ford Motor Company and Craftsman tools.
These efforts place the Harley name on Ford Trucks and Craftsman tool boxes. Harley appears to have learned from their mistakes of the past. They recognize the need to produce a quality product and to aggressively promote and advance their brand and products. Part I: The Organization H-D Mission ; Vision Statement Harley-Davidson is screaming forward to its 2013, 110th Anniversary Celebration in Milwaukee, WI. Since 1903, Harley-Davidson has woven the iconic American motorcycle into the fabric of American culture.Today, Harley-Davidson spans its global influence to Latin America, Asia Pacific, Europe, Middle East, and Africa.
Harley-Davidson is a unique company in the way that they connect with their customers and by doing so they separate themselves from the competition. Their mission and vision statement define this uniqueness. By remaining true to the mission, H-D retains a loyal stakeholder base. The mission statement reads: We ride with our customers and apply this deep connection in every market we serve to create superior value for all of our stakeholders.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 the 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. The vision statement reads: We fulfill dreams inspired by the many roads of the world by providing remarkable motorcycles and extraordinary customer experiences.We fuel the passion for freedom in our customers to express their own identity. The mission statement clearly defines who and what are at the center of their success… the riders and the Harley-Davidson experience. H-D Products ; Services Harley-Davidson has two segments of its operations.
The first segment is the motorcycles and related products which designs, manufactures, and sells the H-D motorcycles, accessories, parts, merchandise, and related services (DeBaun, 2013). The Parts ; Accessories (P;A) consists of replacement parts and mechanical and cosmetic accessories.H-D products are sold to retail customers worldwide through their network of independent dealers. Harley-Davidson’s worldwide motorcycle sales generated approximately 76%, 76% and 76% of the total net revenue in the Motorcycles segment during 2012, 2011 and 2010, respectively (Harley-Davidson, 2013). Harley-Davidson manufactures five lines of motorcycles: (1) Touring, (2) Dyna, (3) Softail, (4) Sportster, and (5) VRSC.
Harley-Davidson has been the historical market share leader in the U. S. heavyweight motorcycle market. Competitors in the U. S. arket offer heavyweight motorcycles in all categories of the market including products that compete directly with Harley-Davidson’s offerings in the touring and cruiser categories (Harley-Davidson, 2013).
Table 1 represents the total shipments of H-D motorcycles over the past three years. Table 1: H-D Shipments| 2012| 2011| 2010| | | | | Sportster| 51,704| 49,656| 41,409| Custom| 96,425| 91,459| 87,158| Touring | 99,496| 92,002| 81,927| Total| 247,625| 233,117| 210,494| | | | | | | | | | | | | | | | | Domestic| 160,477| 152,180| 131,636| International| 87,148| 80,937| 78,858|Total| 247,625| 233,117| 210,494| Source: Harley-Davidson, Inc. Website The latter segment is H-D Financial Services (HDFS). HDFS provides insurance as well as secured financing to H-D dealers and the retail customers (DeBaun, 2013). HDFS conducts business primarily in the U. S.
and Canada. HDFS consists of three divisions: (1) Wholesale Financial Services, (2) Retail Financial Services, and (3) Insurance Services. In the United States, HDFS financed 50. 9% of the new Harley-Davidson motorcycles retailed by independent dealers during 2012, as compared to 51. 0% in 2011.
In Canada, HDFS financed 28. % of the new Harley-Davidson motorcycles retailed by independent dealers during 2012, as compared to 30. 4% in 2011. Competitors for retail motorcycle finance business are primarily banks, credit unions and other financial institutions. In the motorcycle insurance business, competition primarily comes from national insurance companies and from insurance agencies serving local or regional markets.
For insurance-related products such as extended service contracts, HDFS faces competition from certain regional and national industry participants as well as dealer in-house programs.Competition for the wholesale motorcycle finance business primarily consists of banks and other financial institutions providing wholesale financing to Harley-Davidson dealers in their local markets (Harley-Davidson, 2013). Target Market Harley-Davidson is executing a multi-generational and multi-cultural marketing strategy. They measure the success of this strategy by monitoring market shares (where available) across its various customer definitions, as well as monitoring brand health in various markets. U.
S. etail purchasers of new Harley-Davidson motorcycles include both core and outreach customers and are diverse in terms of age, gender and ethnicity. Harley-Davidson defines its U. S. core customer base as Caucasian men over the age of 35 and its U. S.
outreach customers as women, young adults, African-American adults, and Latino adults. In 2011, which is the most recent data available, Harley-Davidson was the market share leader in U. S. new motorcycle registrations of heavyweight motorcycles within its core and outreach customers. In the U. S.
Harley-Davidson was also the market share leader in 2011 across all (street legal) motorcycle registrations, regardless of engine displacement, within its core and outreach customers. In 2012, the average U. S. retail purchaser of a new Harley-Davidson motorcycle had a median household income of approximately $89,500. More than three-quarters of the U.
S. retail sales of new Harley-Davidson motorcycles were to purchasers with at least one year of education beyond high school, and 34% of the buyers had college/graduate degrees (Harley-Davidson, 2013).Table 2 illustrates the three years prior to 2012 and the respected median incomes. Harley-Davidson’s success in marketing stems from the Harley-Davidson culture and experience. H-D experiences have traditionally been at the center of much of the marketing. To attract customers and achieve its goals, H-D not only participates in motorcycle rallies around the world, but also in major motorcycle consumer shows, racing activities, music festivals, and other special promotional events.
Since 1983, Harley-Davidson has promoted its products and the related lifestyle through the Harley Owner’s Group (H.O. G. ), which has approximately 1 million members worldwide and Harley-Davidson believes is the industry’s largest company-sponsored motorcycle enthusiast organization. This group also sponsors many motorcycle events, including rallies and rides for Harley-Davidson motorcycle enthusiasts throughout the world (Harley-Davidson, 2013). Table 2: Organizational Structure The organizational structure at Harley-Davidson is a form of divisional structure.
The upper management consists of an executive leadership team which oversees key functional areas (see Table 3).The two segments- H-D Motor Company and H-D Financial Services- are independent of each other and ran by corresponding Presidents of each segment. Table 3: Core Competencies & Competitive Advantages Harley-Davidson contains several core competencies and competitive advantages. Harley-Davidson motorcycles cannot be replicated. Even the roar of the pipes is patented so that no other motorcycle can replicate that sound. Another competency is the two platforms H-D operates- H-D Motor Company and H-D Financial Services.
By offering financing and insurance services, H-D positions themselves above the competition.This service makes it easier for retail customers to purchase H-D products and for potential dealers to open new stores. HDFS competes on convenience, service, brand association, dealer relations, industry experience, terms and price. Lastly, the brand recognition of H-D is iconic. People from all over the world recognize the Harley-Davidson brand.
Goals & Strategies As mentioned earlier, Harley-Davidson has the goal of expanding its customer base beyond their core customers. In 2012, sales to outreach customers in the U. S. rew faster than sales to our core customers for the first time, and H-D continued our international growth, including strong gains in the emerging markets. Harley-Davidson relies on its relationships with the independent dealers and distributors to develop and implement effective retail sales plans to create demand among retail purchasers for the motorcycles, related products, and services that dealers and distributors purchase from Harley-Davidson. This strategy has its strengths and weaknesses.
If the dealers and distributors are optimizing their resources properly, then the demand and sales will increase which will benefit H-D.However, if they do not perform, it could severely affect revenue streams leading to H-D not meeting their financial obligations. Another strategy and goal is to invest in technology. Harley-Davidson is continually modifying and enhancing its systems and technology to increase productivity and efficiency. Harley-Davidson has several strategic projects in process. As new systems and technologies (and related strategies) are implemented, H-D projects positive impacts to its manufacturing and other business processes (Harley-Davidson, 2013).
Part II: External FactorsIndustry / Market Analysis For the last several years HD has been the top seller in heavyweight motorcycles. Their competition can be counted on one hand. Honda, Yamaha, Kawasaki, and Suzuki produce a full line of motorcycles ranging from scooters to heavy weight motorcycles. HD competitors’ wide product line has created many customer complaints for low quality, which hurts their market shares. Many of HD competitors began by copying other products, but changed to depend on innovative designs.
Honda is the largest company in terms of size, financial backing, and reputation.It offers the widest selection of styles and sizes within the heavyweight category. However, Honda salespeople lack in knowledge of the product. Kawasaki’s products include a full line of motorcycles, jet skis, and other vehicles. It is the leader in sports bikes production but the government is limiting the number of sports bikes to be imported due to safety reasons. Yamaha basically copies Harley but lack Harley’s image.
BMW is famous for producing quality products but the high prices hold them back from expanding. Three main geographic markets are North America, Asia, and Europe with North America being the largest.With the baby boomers aging there are opportunities on the table for new markets. The Japanese market accounts for a lot of the Asian market and is an untapped one. Government regulations and trade policies make it difficult for foreign manufacturers to enter in though.
Most Asians consider motorcycles as a basic means of transportation. Major target areas include China, Korea, Taiwan, and Vietnam. The European market is another huge market. Europeans have a higher disposable income and seem to enjoy a higher standard of living. * Economic * Global recessions effecting economies Increase in prices for key raw materials * Technology * Customers look for technologically advanced bikes * Computer-based inventory control systems could play a role in managing inventories * Modern motorcycles are more comfortable than in the past. Example: less vibration * Communication across continents is easier and cheaper * Social, cultural, demographic, and natural environment * Sales tend to rise in the warmer months (March through August) in northern United States and Canada * The aging population growth and income growth Positive changes and increased business from young adult riders including women * More diverse lifestyles – new interest from different groups outside the United States * Political, governmental, and legal * The Environmental Protection Agency (EPA) regulates automobile and motorcycle emissions.
Environmental laws add extra pressure for companies. * Future price increase on steel and aluminum therefore raising the price of the product. * HD production facilities could move over seas * Government considers HD an American icon * Laws on helmets for motorcyclists * Competitors * Its main competitors are Honda and Yamaha Competitors are more diversified therefore less vulnerable to industry changes * Honda and Yamaha sell well in international markets * Harley products are more expensive than its competitors, but are known for service * Honda, Suzuki, and Harley have expanded their touring line of motorcycles to cater to the aging market * Key success factors * HD apparel * Parts and accessories * HD extended service plan * HD cycle insurance * Finance protection plan * Payment protection plan * Trend and Opportunities * The international market for heavy weight bikes is growing substantially and is now larger than the U. S. The European market is the highest international market * Asian markets are taking off * Building relationships / partnering with other automobile manufacturers * Young adults (women) are becoming interested in motorcycles * Interest rates are somewhat low * Customer loyalty * Threats * High rise in oil prices * Average buying age is 42 years old and increasing * HD competitors are more diversified * International importing tax * Increase in labor cost Competitor Analysis * Strategic Group analysis (try to discern competitors game plans) * Competitive Strength Assessment (based on key success factors)Part III: Analytical Tools External Factor Evaluation Matrix Opportunities:| Weight| Rating| Weighted Score | Broadening market opportunities| 0.
30 | 4| 1. 20 | Competitors are much smaller, representing acquisition candidates| 0. 15 | 3| 0. 45 | Reduced property values in U. S.
| 0. 10 | 3| 0. 30 | Interest rates during recessionary times are generally low| 0. 15 | 3| 0. 45 | Threats:| | | – | Global economy in recession/motorcycles are non-essential| 0.
15 | 1| 0. 5 | Asian manufactured motorcycles have better fuel economy| 0. 15 | 1| 0. 15 | Total| 1. 00 | | 2. 70 | Internal Factor Evaluation Matrix Key Internal Factors| Weight| Rating| Weighted Score| Strengths:| | | | Strong brand recognition/equity| 0.
25 | 3| 0. 75 | Strong customer loyalty| 0. 15 | 4| 0. 60 | EPS up 184% in 2012 from 2009| 0. 20 | 4| 0. 80 | Expanding global presence| 0.
15 | 3| 0. 5 | Weaknesses:| | | – | Declining asset base (due to declining land values)| 0. 10 | 1| 0. 10 | High debt to asset ratio (72. 1% – 2012)| 0. 15 | 2| 0.
30 | Total| 1. 00| | 3. 00 | SWOT Matrix | Strengths| Weaknesses| | Strong brand recognition/equity| Declining asset base (due to declining land values)| | Strong customer loyalty| High debt to Asset ratio (72. 1% – 2012)| | EPS up 184% from 2009 to 2012| | | Growing global presence| | | | | Opportunities| | |Broadening Market opportunities overseas| Open additional stores in Asian markets where growth is especially strong| | Competitors are much smaller, representing acquisition candidates| Cash is available to acquire smaller players or suppliers – integration strategy| Continue to use borrowed money to expand operations| Reduced property values in U. S.
| Purchase more land and property| | Interest rates during recessionary times are generally low| | | | | | | | | Threats| | | Global economy in recession/motorcycles are non-essential| | | Asian manufactured motorcycles have better fuel economy| Open new line of motorcyles (e. . Buell) to reach sport bike market| | Strategic Position and Action Evaluation (SPACE) Matrix Part IV: Finance Historic Financial Statements ; Projected Statement | 2010| 2011| 2012| Proj. 2013| Sales Rev. | 4.
86 Billion| 5. 31 Billion| 5. 58 Billion| 5. 88 Billion +5. 33%| COGS| 3. 01 Billion| 3.
31 Billion| 3. 46 Billion| 3. 57 Billion +3. 24%| Gross Income| 1. 85 Billion| 2.
01 Billion| 2. 13 Billion| 2. 33 Billion +9. 39%| SG;A Growth| 1. 02 Billion| 1. 06 Billion| 1.
11 Billion| 1. 02 Billion +4. 3%| Int. Expense| 90. 36 Million| 45. 27 Million| 46.
03 Million| 87. 2 Million +89. 5%| Pretax Income| 390. 7 Million| 792. 66 Million| 961.
51 Million| 1. 74 Billion +80. 95%| Net Income| 259. 67 Million| 548. 08 Million| 623. 93 Million| 1.
44 Billion +130. 83%| EPS (basic)| . 63| 2. 57| 2. 75| 6.
22 +225. 81%| EPS (diluted)| . 62| 2. 55| 2. 72| 6.
13+225. 43%| EBITDA| 993. 31 Million| 1. 11 Billion| 1. 18 Billion| 1. 4 Billion +18.
54%| 2012 2011 2010 2009 2008 2007 Revenue: Motorcycles and related products 4,942,582 4,662,264 4,176,627 4,287,130 5,578,414 5,726,848 Financial services 637,924 649,449 682,709 494,779 376,970 416,196 Total revenue 5,580,506 5,311,713 4,859,336 4,781,909 5,955,384 6,143,044 Costs and expenses:Motorcycles and related products cost of goods sold 3,222,394 3,106,288 2,749,224 2,900,934 3,647,270 3,612,748 Financial services interest expense 195,990 229,492 272,484 283,634 136,763 81,475 Financial services provision for credit losses 22,239 17,031 93,118 169,206 39,555 11,252 Selling, administrative and engineering expense 1,111,232 1,060,943 1,020,371 979,384 1,060,154 1,012,008 Restructuring expense and asset impairment 28,475 67,992 163,508 224,278 12,475 0 Goodwill impairment 0 0 0 28,387 0 0 Total costs and expenses 4,580,330 4,481,746 4,298,705 4,585,823 4,896,217 4,717,483 Operating income 1,000,176 829,967 560,631 196,086 ,059,167 1,425,561 Investment income 7,369 7,963 5,442 4,254 11,296 22,258 Interest expense 46,033 45,266 90,357 21,680 4,542 0 Loss on debt extinguishment 0 0 85,247 0 0 0 Income before provision for income taxes 961,512 792,664 390,469 178,660 1,065,921 1,447,819 Provision for income taxes 337,587 244,586 130,800 108,019 381,686 513,976 Income from continuing operations 623,925 548,078 259,669 70,641 684,235 933,843 Loss from discontinued operations, net of tax 0 51,036 (113,124) (125,757) (29,517) 0 Net (loss) income 623,925 $ 599,114 $ 146,545 $ (55,116) $ 654,718 $ 933,843 $ Earnings per common share from continuing operations: Basic . 75 2. 35 1. 11 0. 30 2. 92 3.
75 Diluted 2. 72 2. 33 1. 11 0. 30 2. 92 3.
74 Loss per common share from discontinued operations: Basic 0 0. 22 (0. 48) (0. 54) (0. 13) 0.
00 Diluted 0 0. 22 (0. 48) (0. 54) (0. 13) 0.
00 (Loss) earnings per common share: Basic 2. 75 2. 57 0. 63 (0. 24) 2. 80 3.
75 Diluted 2. 72 2. 55 0. 62 (0. 24) 2. 79 3.
74 Cash dividends per common share 0. 620 $ 0. 475 $ 0. 40 $ 0. 40 $ 1.
29 $ 1. 06 $ NOTES: On October 15, 2009 the Company announced that it would exit from the Buell product line. On December 10, 2010 the Company repurchased $297 million (face value) of senior unsecured notes scheduled to mature Feb. , 2014. The loss on debt extinguishment line item has been added to year 2010. On October 15, 2009 the Company announced its intent to divest MV.
The Motorcycles segment financial information has been adjusted to reflect MV as a discontinued operation for all periods presented. (In thousands, except per share amounts) HARLEY-DAVIDSON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2012, 2011, 2010, 2009, 2008, and 2007 Projected Financial Statements| | | | | | | | | | | | | | | | | | | 2013| 2012| 2011| 2010| 2009| | Projected| Actual| Actual| Actual| Actual| Revenue USD Mil| 5,725| 5,581| 5,312| 4,859| 4,782|Gross Margin %| 41. 5| 38. 7| 41.
5| 43. 4| 39. 3| | | | | | | Operating Income USD Mil| 1,150| 1,000| 830| 561| 196| Net Income USD Mil| 675| 624| 599| 147| 55| | | | | | | Assets USD Mil| | | | | | Current Assets| | | | | | Cash and equivalents| 1,225| 1,068| 1,527| 1,022| 1,630| Short term investments| 140| 136| 153| 140| 40| Net receivables| -| 230| 219| 262| 269| Inventory| 400| 294| 418| 326| 323| Other Current Assets| 2,250| 2,113| 2,093| 2,169| 1,617| Total Current Assets| 4,015| 3,841| 4,410| 3,919| 3,879| Long term investments| 4,400| 4,103| 4,091| 4,305| 3,698| Goodwill| 31| 30| 29| 30| 31|Other assets| 822| 815| 809| 815| 907| Total Assets| 9,268| 8,789| 9,339| 9,069| 8,515| | | | | | | Liabilities USD Mil| | | | | | Current Liabilities| | | | | | Accounts payable| 250. 00| 257. 00| 256.
00| 225. 00| 165. 00| Other current liabilities| 5| 8| 43| -| 70| Total current liabilities| 255. 00| 265. 00| 299.
00| 225. 00| 235. 00| Long term debt| 4,250. 00| 4,371. 00| 3,844.
00| 4,521. 00| 4,114. 00| Other liabilities| 125. 00| 131. 00| 140. 00| 153.
00| 155. 00| Total liabilities| 4,375. 00| 4,502. 00| 3,984. 00| 4,674. 00| 4,269.
00| | | | | | | Assumptions:| | | | | |India investment $9 Million/$1. 8 Mil per 5 stores| | | | | Each new store generates $2. 2M revenue in first year| | | | | New stores incur operating expenses at same ratios as existing stores| | | Shares outstanding = | | | | | 22. 5Mil| Share value = | $ 57. 37 | | | | | | | | | | | Part V: Strategy Development One of the key advantages of Harley-Davidson is that they are a one stop shop.
A customer has the option of obtaining financing and/or insurance at the dealer. HDFS not only offers competitive rates to the dealers and customers, it also is a great alternative revenue source for Harley-Davidson.This feature is currently only available in North America and Canada. As Harley-Davidson implements their strategy to include a more diverse next generation of riders- the outreach customers previously mentioned- Harley-Davidson will need to make HDFS available to these new dealers and customers in emerging markets. A great way to start would be to focus on China and India.
Harley-Davidson should be engaged with these countries distribution networks. They need to be successful in these markets and make transactions a seamless process both for dealers and consumers.Harley-Davidson will need to designate specific China and India delegate teams which represent the culture and can work in a respectful fashion with the governmental officials. If they can succeed in these markets, Harley-Davidson will increase sales, extend their international market presence, and enhance brand recognition. References DeBaun, K.
(2013, May 3). Harley-Davidson Is Fairly Valued. Retrieved from Seeking Alpha: http://seekingalpha. com/article/1400361-harley-davidson-is-fairly-valued? source=yahoo Harley-Davidson. (2013, May 3).
2012 Chariman’s Letter. Retrieved from Harley-Davidson: http://ar. harley-davidson. com/letter. php