Presented by Neelutpal Saha (222012) Sachin Dhir (222018) Harley-Davidson Strategic Management 1
Jul 17, 2015
2
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?
3
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
5
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
6
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
7
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
8
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
9
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
10
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)
11
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
12
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
13
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
14
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
15
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%
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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