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Presented byNeelutpal Saha (222012)

Sachin Dhir (222018)

Harley-Davidson Strategic Management

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Questions– Identify Harley Davidson’s strategy and explain its rationale. ‐

– Compare Harley Davidson’s resources and capabilities with ‐

those of Honda. What does your analysis imply for Harley’s potential to establish cost and differentiation advantage over Honda?

– What threats to continued success does Harley Davidson face? ‐

– How can Harley Davidson sustain and enhance its competitive ‐position?

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Industry Attractiveness(Where to compete?)

- Heavyweight Cruiser and Touring bikes

- Performance Models through Buell Motorcycles

- Spares, Repairs & Maintenance through their dealer networks

- General Merchandise through third-party manufacturers

Competitive Advantage(How should we compete?)

- According to Porter’s Generic strategies Harley Davidson’s has

a Focus - Differentiation Strategy - It is in the business of selling

lifestyle (a unique Harley Experience), not transportation

Corporate Strategy

Business Strategy

4Strategic Importance

Rela

tive

Stre

ngth

SUPERFLUOUS STRENGTH KEY STRENGTHS

ZONE OF IRRELEVANCE KEY WEAKNESSES

• Brand & Customer Loyalty• Distribution• MAN (Material As Needed)• Customized Design

• Manufacturing• R&D

• Product Development• International Exposure

• Public Relationship

Resources and Capabilities

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Resources & Capabilities

Harley Davidson Honda

Technology R&D expenditure of only 179 million (2005), technologically laggard

Huge R&D expenditure of 4356 million (2005)

Design Traditional (old-style) but wide range of customization opportunities (ex- Chrome Consulting)

Imitated design but engineered motorcycles for greater smoothness and comfort

Purchasing Lack of bargaining power but Harley fostered close relations with key suppliers. Its SAC promoted collaboration and best practice sharing within the Harley network

Honda produced over 5 million bikes per year. It has global purchasing power with huge bargaining power

Manufacturing Development of capabilities in TQM, Just-in-time scheduling, CAD/CAM and delegating decision making to the shop-floor

A world leader in economies of scale production, had advantage of economies of scale and advanced automation

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Resources & Capabilities

Harley Davidson Honda

Distribution 85% of dealership in US was exclusive and were regulated through dealer development program. Harley Davidson University was established to enhance dealer competencies

Worldwide dealership network

Brand Ultimate biker status symbol, a quasi-religion, an institution, a way of life

Strong reputation for quality, performance, reliability and value for money

Customer Service Direct linkage with customers. The Harley Owner’s Group was formed in 1983 to increase Harley’s involvement in customer’s riding experience.

Almost entirely through dealers

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Differentiation Advantage

Informati

on

Visit Dealer

Model S

election,

Featu

res

Customiza

tion

Finance

and

Insurance

Learning to

ride

Accesso

ries

Repairs &

Servi

cing

Engineering

Design, R

&D

Manufacturin

g

component

Assembly

Painting

Marketing

Dealer Servi

ces

Customer S

ervice

s

Customer Value Chain

Harley Davidson Value Chain

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Analyzing Harley’s Cost PositionEconomies of Scale Not available, but dependent on

close relations with key suppliers

Economies of Learning

Harley Davidson Operating System was a methodology for continuous improvement through team based

efforts

Production TechniquesProcess Re-engineering through

MAN (materials as needed)Improvement through TQM, JIT,

CAD/CAM. High Inventory turnover

Product Designs Standardization of design and key components but wide customizations

Input Costs Bought-in, customized components accounted for large input costs

Residual Efficiency Flatter organization structure divided into circles

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Harley-Davidson’s Threats

• Threats faced by Harley-Davidson creating a barrier to sustain competitive advantage:

1. Brand Recognition2. Customers3. International Exposure4. Intellectual Property5. Lack of Diversification

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1. Brand Recognition

• Increase in demand and sales led to loss of exclusivity• Losing appeal loss of their strongest asset• Risk of changing consumer preferences (increasing interest in

sports models)

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2. Customers

• Harley-Davidson highly focused on American traditional style for higher-class customers

• In 1987, 50% of buyers are under 35 and now less than 15%• Generation threat Current customers are ageing

More focus on younger middle-class customers

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3. International Exposure• EU and Asia prefer lightweight, high technology, sportive

and low-priced motorcycles• Falling back on innovation and technology• High cost due to low production high prices for above• Acquired Buell in order to gain market share outside

America tried offering same experience as Harley-Davidson Unsuccessful

Low market-share in Europe and Asia

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4. Intellectual Property

Offering average or similar product price will play the final role

• Example: V-twin cruisers competitors like Honda offers the same product by imitating HOWEVER advanced technology and lower price

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5. Lack of Diversification

• Portfolio consisted mainly Cruiser MotorcyclesHowever, competitors imitated Harley-Davidson loss of competitive advantage• Touring Motorcycles not up to customers’ requirements low

on technology• No market of Performance Motorcycles most demanded by

consumersHarley-Davidson maintains on a vision of traditional heavyweight motorcycles lowers the potential of diversification

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Sustain & Enhance Competitive Advantage

• Grant (2010) identified that superior Economic and Financial performance is viewed as evidence of competitive advantage:

As identified, Harley-Davidson falls behind its competitors and therefore needs to sustain and enhance its competitive position

In 2005 Harley-Davidson Honda

Income after tax $960 million $3,628 million

Operating Cash Flow -$961 million $6,944million

R&D Expenditure $179 million $4,356 million

Return On Equity 31.10% 11.86%

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Measuring sustainability: VRIO FrameworkValuable• HD motorcycles are valuable because of the lifestyle factor. HD neutralizes

other competitors in this category because the lifestyle and culture cannot be duplicated. Rivals in the industry all compete for different, yet complementary, lifestyle factors.

Rare• HD motorcycles are not rare. However, the reputation and personal value is

rare and controlled only by that individual. Motorcycle manufacturers are many,. That image is rare.

Imitability• HD has a causally ambiguous position within the market, This market position is

difficult to imitate, as is the culture that customers, suppliers, and employees participate in. passion for HD cannot be imitated or substituted.

Organization• Harley-Davidson’s most un-substitutable capabilities are the knowledge,. fosters

and encourages the culture that makes its company special to customers, employees and suppliers. Without this culture, HD would not survive in today’s market

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Harley Davidson Core Competencies

• Human Resources and Capital – Trust, know-how, managerial capabilities and company culture.

• Innovation resources from suppliers, employees and management

• Reputational resources – Brand name, reputation with suppliers and product perception

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Harley Davidson Capabilities

• Integrated technological resources – Usage of Information system to ensure smooth flow of production

• Unique skills of employees – Provide high level training programs for its employees to add value to the company

• Manufacturing – HD manufacturing plants are capable of producing many different models

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Strategic Recommendation

• According to Grant (2010), sustainability can be achieved

through price-based strategies, differentiation, and lock in.

1. Price-based strategy 2. Differentiation 3. Lock-in

Accept reduced margin Create difficulties for imitation

Achieve size/market dominance

Win a price war Achieve imperfect mobility of resources/competencies

First-mover advantage

Reduce costs Reduce margin Reinforcement

Focus on specific segments

Rigorous enforcement

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1. Price-based strategies Harley-Davidson?• Potential cost reduction throughout value chain• Improvement in price transparency• Increase of sales in European and Asian market leading to

economies of scale• Increase production volume to lower cost per unit

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2. Differentiation Strategy Harley-Davidson?• Roberts (1999): “Sustainable advantage comes from …

innovation, pure and simple.”• Separate department for R&D in order to realize and obtain

consumer preferences• Sustain intellectual property make imitation difficult

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3. Lock-in Harley-Davidson?• Sustain dominance in American market• Aim to achieve higher market share in Europe and Asia

through lightweight motorcycles• Economies of scale through price-based strategy• Reinforce intellectual property rights such as more patents

difficult to imitate

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Conclusion

• Harley-Davidson remains to be among the market leaders in America

• There are many threats regarding losing competitive advantage

• Trends of heavyweight is going down• Temporary advantage needs to be retained with proactive

strategies• International exposure is essential as it will open many new

sources of cash flow for the company

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Thanks