Full methodological strategic analysis on Harley Davidson motor cycle company, for full paper please contact me

1. AUG 2011
09/27/12 1

2. Harley Davidson Strategic Audit
Presented to: Dr. Saneya el Galaly
Presented By:
Mahmoud Abdel Hamid
Karim Mohsen
Mohamed Hossam
Mohamed Madkour
4/09/2011 2

3. Agenda
• Brief History of HD • Alternative Strategy
• Current Situation – TOWS Matrix
– Corporate Governance • Possible strategies
– Financial position
•
• Recommended Strategies
Vision and Mission
• Environmental Scanning • Evaluation
• Industry Analysis • Conclusion
• SWOT
• EFAS
• IFAS
• KSFA
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4. HISTORY
Foundation
It all started in Milwaukee, Wisconsin in 1903 when William Harley,
Walter, and Arthur Davidson, along, created the first Harley-Davidson
in their family building.
09/27/12 ® Tony Gauvin, UMFK,
4
4/09/2011 2005 4

5. HD Today
• Manufactures heavyweight Custom & Touring Motorcycles
• Owns Buell Motorcycle & Harley Davidson Financial services
(HDFS)
• Has over 1,500 dealers worldwide in 30 countries.
• Foreign business is about 18% of Sales; R&D, 3.2%.
• Has about 7,900 employees.
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4/09/2011 5

6. Corporate Governance
• Although the motorcycling business is fun, we take
corporate governance seriously.
• The Board of Directors is composed of accomplished
leaders from a range of industries who meet regularly to
review Company objectives and plan for future growth.
• These individuals draw on their diverse backgrounds and
experiences.
• They are proud Harley-Davidson enthusiasts, and they
work to ensure that the decisions made by Harley-
Davidson promote fairness, financial transparency and
accountability to all our shareholders
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7. Financial Ratios
H-D Industry S&P 500
Current P/E Ratio 36.7 30.6 20.5
Current Ratio 2 2 1.4
Leverage Ratio 4.3 3.5 2.3
Price/Sales Ratio 1.96 1.65 2.21
Price/Book Value 4.33 4.57 3.64
Price/Cash Flow Ratio 18.5 17.4 17.1
Gross Margin 37.8 30.9 38.3
Net Profit Margin 5.3 5.4 12.4
Return On Equity 12 19.4 22.5
Return On Assets 2.8 6.2 8
Return On Capital 3.6 10.5 10.5
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8. Financial Ratios
Management Efficiency indicators
H-D Industry S&P 500
Income/Employee 41,217 36,567 107,222
Revenue/Employee 771,323 654,649 963,920
Receivable Turnover 3.2 11.6 14.2
Inventory Turnover 9.3 8.8 11.6
Asset Turnover 0.5 1.2 0.8
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9. Current Vision
“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.”
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10. Current 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.”
10

11. HD Values
These are our values. They are the heart of how
we run our business. They guide our actions and
serve as the framework for the decisions and
contributions our employees make at every level of
the Company.
• Tell the Truth.
• Be Fair.
• Keep Your Promises.
• Respect the Individual.
• Encourage Intellectual Curiosity.
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12. Mission & Vision Analysis
COMPONENTS MISSION VISION
CUSTOMERS YES YES
PRODUCTS & SERVICES YES YES
MARKETS YES NO
CONCERN FOR SURVIVAL YES NO
TECHNOLOGY NO YES
PHILOSOPHY YES YES
SELF CONCEPT YES YES
CONCERN FOR PUBLIC YES YES
IMAGE
CONCERN FOR EMPLOYEES NO NO
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13. American Market
Data Monitor 2010
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14. Macro Environment ANALYSIS
Political
 Considering HD as American Icon
 Opportunities in emerging economies [India, China], consider Harley-
Davidson as an American idol so that they are not welcoming Harley-
Davidson into their soil.
Economic
 Global recession is effecting economies world wide therefore HD has to
sustain its position in the market.
 The increase in prices for many key row material in manufacturing
 GDP per capita trend in the past five years (42 ~ 47 KUSD) is not showing
severe variation.
Social
 More diverse lifestyles, Creating many Harley Clubs and academies around
the globe like Rider’s Edge .
 Average purchaser of a U.S Harley-Davidson motorcycle is a married male in
his mid-forties. This is affected by early retirement plans and healthcare
programs not letting the luxury option of owning a new motorcycle.
 New interest from different demographic groups outside US.
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15. Continued…
Legal
 Legislation effects of Helmets for motorcyclists forcing all riders by law, otherwise fines are
applied.
 The Congress repealed financial incentives for states without universal helmet laws.
 Licensing of motorcycles inside major city in addition to suburban.
Environmental
 This industry is the first attacked by environmental activists, the environmental
laws varies from country to country. In Europe its Euro, in India its BS.
 Harley-Davidson’s one of the main problem is this environmental problems.
Technological
 More technological advancements because customers looking for energy
efficient and technologically advanced bikes now a day.
 Harley-Davidson is one of the main manufacturer and user of V-ENGINE
configuration.
 Harley-Davidson’s have a wide variety of products according to Standard,
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Performance, Touring & custom.

16. Issue Priority Matrix
Probability of occurring
High Medium Low
*Increase in Oil * Drop in APAC * Embargo due
Prices market Demand “ to political
*Increase in Japan Earthquake” instability
Impact of occurring
Steel Prices *more aggressive
*Competition Governmental
High
Regulation of
Environmental
standards
*New
Technology
Medium
*Increase in
Insurance costs
Low
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17. Industry New Entrant (Low)
Analysis • Switching cost is moderate to high
• Switching cost is moderate to high
•Economies of scale ,capital ,, emission
•Economies of scale ,capital emission
standards ,, distribution channel
standards distribution channel
•High tech Involvement
•High tech Involvement
•Small scale Producers
•Small scale Producers
Rivalry Competition (High)
Power of Buyer (Low)
•Honda, Yamaha, Suzuki ( All
•Honda, Yamaha, Suzuki ( All POWER OF SUPPLIER
•Low power of customer as they
•Low power of customer as they Japanese) with high existing assets
Japanese) with high existing assets
(Moderate)
are individual
are individual
•High exit barriers
•High exit barriers
•Consolidated supplier.
•Consolidated supplier.
•High level of differentiation and
•High level of differentiation and
•Strategic Alliance between Suzuki
•Strategic Alliance between Suzuki
customer loyalty
customer loyalty •Out source Steel, Basic
•Out source Steel, Basic
and Kawasaki through product
and Kawasaki through product
diversification.
diversification. Electronics (huge contract)
Electronics (huge contract)
•Less no. of Dealers also rely on
•Less no. of Dealers also rely on
individual customers
individual customers •Assembly within the Company
•Assembly within the Company
•Industry growth has been
•Industry growth has been
forecasted 3.4%
forecasted 3.4% •Ease of switching suppliers
•Ease of switching suppliers
Substitute Product (Low)
•Very few substitute as luxury
•Very
bike.
bike.
•Cars, bicycle and sports car.
•Cars, bicycle
•NO subs when looking for
•NO subs when looking for
luxury bike.
luxury bike.
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18. Industry Matrix
Harley Honda Yamaha
Critical Success Factors Weight Rating Weighted Rating Weighted Rating Weighted
Competitive Profile Matrix Score Score Score
Product Selection 0.15 2 0.30 4 0.60 4 0.60
Product Quality 0.1 3 0.30 4 0.40 3 0.3
Price Competitiveness 0.10 1 0.10 3 0.30 3 0.30
Management 0.05 4 0.20 4 0.20 4 0.20
Financial Position 0.05 4 0.20 3 0.15 3 0.15
Customer Loyalty 0.20 4 0.80 2 0.40 2 0.40
Global Expansion 0.2 2 0.40 4 0.80 4 0.80
Market Share 0.15 3 0.45 3 0.45 3 0.45
Total 1.00 2.75 3.30 3.20
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19. External Analysis
• Opportunities
– The international heavy weight market is growing and is now larger than
the U. S. heavyweight market
– The European demand for Harley Davidson is the highest in the
international market and represents the single largest motorcycle market
in the world.
– Asian economy is booming, China/India is the only place not effected by
global recession
– Alliances with Ford Motor Company or other automobile manufacturers
are possible.
– younger riders are increasing becoming interested in bikes.
– Interest rates are at historical lows through different dealers.
– Increasing demand for bikes in US markets
– Customers value perception through a good quality parts maintaining
loyalty.
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20. External Analysis
• Threats
– High rise in the Oil prices. Harley-Davidson vehicles are heavy weight
motorcycles and this is one of the major threats they are facing,
because their vehicles are more oil consuming
– Harleys average buying age is 42 years old and increasing.
– The European Union’s motorcycles noise standards are more stringent
than those of Environmental Protection Agencies in the U.S and
increased environmental stand.
– Some competitors of Harley Davidson have larger financial and
marketing resources and they are more diversified increase HD risk.
– international importing Tax , and increase in labor cost
– The expiration of US government initiatives to stabilize credit markets
programs could have a negative impact on capital markets and limit the
company’s access to capital market funding
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21. EFAS Matrix
Key External Factors Weight Ratin Weighted
g Score
Opportunities
1-The international heavy weight market is growing and is now larger 0.12 2 0.24
than the U. S. heavyweight market
2-The European demand for Harley Davidson is the highest in the 0.06 2 0.12
international market and represents the single largest motorcycle
market in the world
3-Asian economy is booming, China/India is the only place not 0.05 2 0.1
effected by global recession
4-Alliances with Ford Motor Company or other automobile 0.04 1 0.04
manufacturers are possible.
5-younger riders are increasing becoming interested in bikes 0.04 4 0.16
6-Interest rates are at historical lows through different dealers. 0.08 3 0.24
7-Increasing demand for bikes in US markets 0.06 4 0.24
8-Customers value perception through a good quality parts 0.1 4 0.4
maintaining loyalty
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22. EFAS Matrix
Threats Weight Ratin Weighted
g Score
1. High rise in the Oil prices. Harley-Davidson vehicles are heavy 0.12 2 0.24
weight motorcycles and this is one of the major threats they are facing,
because their vehicles are more oil consuming.
2. Harleys average buying age is 42 years old and increasing. 0.04 2 0.08
3. The European Union’s motorcycles noise standards are more 0.1 3 0.3
stringent than those of Environmental Protection Agencies in the U.S
and increased environmental stand.
4. Some competitors of Harley Davidson have larger financial and 0.05 1 0.05
marketing resources and they are more diversified. Below
5. international importing Tax , and increase in labor cost 0.08 2 0.16
6. The expiration of US government initiatives to stabilize credit markets 0.06
Average
2 0.12
programs could have a negative impact on capital markets and limit the
company’s access to capital market funding
1.00 2.49
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23. Internal Analysis
• Strengths
– Robust Cash Flow.
– Strong Market Position and Brand image
– Strong relationships built on trust and respect with suppliers and
dealers..
– Harley Davidson operates in two principal business segments:
Motorcycles and Related Products, and Financial Services.
– Harley Davidson is the only major American motorcycle manufacturer.
– The Harley Owners Group (HOG) is the industry’s largest company
sponsored motorcycle enthusiast organization, which currently has
approximately 750,000 members worldwide.
– Harley Davidson offers customers the opportunity to customize their
bikes
– Harley Davidson has a strong marketing department, which sponsors
and participates in all major motorcycle consumer shows and rallies.
– Proven product quality
– CSR (Breast Cancer Network)
09/27/12 23

24. Internal Analysis
• Weaknesses
– Declining Financial performance
– Poor Credit rating (BBB+)
– Unfunded employee post retirement benefits
– High price, Harley-Davidson bikes are the costly bikes in this category.
They just started making some bikes in the low cost category Harley
Davidson has had difficulty gaining market share in some European
countries.
– The top Board of Directors for Harley-Davidson are all men.
– Difficult to attract and retain talented employee.
09/27/12 24

25. IFAS Matrix Weight Rating Weighted
Key Internal Factors Score
Strengths
1. Robust Cash Flow. 0.06 4 0.24
2. Strong Market Position and Brand image. 0.1 3 0.3
3. Strong relationships built on trust and respect with suppliers 0.1 3 0.3
and dealers.
4. Harley Davidson operates in two principal business 0.04 3 0.12
segments: Motorcycles and Related Products, and Financial
Services.
5. Harley Davidson is the only major American motorcycle 0.05 4 0.2
manufacturer.
6. The Harley Owners Group (HOG) is the industry’s largest 0.06 4 0.24
company sponsored motorcycle enthusiast organization, which
currently has approximately 750,000 members worldwide.
7. Harley Davidson offer’s a custom the opportunity to 0.06 4 0.24
customize their bikes.
8. Harley Davidson has a strong marketing department, 0.05 3 0.15
9. Proven Product quality 0.1 4 0.4
10. CSR (Breast Cancer Network) 0.02 3 0.06
09/27/12 22

26. IFAS Matrix
Weaknesses
Weight Rating Weighted
Score
1. Declining Financial performance 0.1 2 0.2
2. Poor Credit rating (BBB+) 0.08 1 0.08
3. Unfunded employee post retirement benefits 0.06 2 0.12
4. High price, Harley-Davidson bikes are the 0.08 2 0.16
costly. They just started making some bikes in
the low cost category
5. The top Board of Directors for Harley- 0.02 Below
2 0.04
Davidson are all men. Average
6. Difficult to attract and retain talented 0.02 2 0.04
employee.
1.00 2.89
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27. Strategic Factor Analysis
Weighted
Key Strategic Factors Weight Rating Score Duration
Proven product quality 0.15 4 0.6 Inter-L
Strengths Strong market position and brand image 0.12 3 0.36 S-Inter
Wide distribution network 0.07 3 0.21 S
Declining financial performance 0.05 2 0.1 Inter
Unfunded employee post retirement benefits 0.03 2 0.06 Inter
Weaknesses
High prices, Harley-Davidson bikes are the costly
bikes in this category. They just started making
some bikes in the low cost category. 0.05 2 0.1 Inter-L
Harley-Davidson have a good brand value
among its customers and in U.S people 0.10
Below 0.4
4 Inter
Opportunities Dealers are financing the purchase of used HD
motorcycles at low interest rates 0.07 Average
3 0.21 S
The international heavy weight motorcycles
market is growing 0.11 2 0.22 S-Inter
Environmental protection laws (emissions and
noise) 0.04 3 0.12 Inter-L
Threats
High rise in the Oil prices 0.15 2 0.3 Inter-L
Increase in Labor cost 0.06 2 0.12 Inter
2.8
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28. TOWS Matrix
Strengths Weaknesses
S.1. Proven product quality W.1. Declining financial performance
S.2. Strong market position and brand image W.2. Unfunded employee post retirement benefits
W.3. High prices, Harley-Davidson bikes are the
costly bikes in this category. They just started
S.3. Wide distribution network making some bikes in the low cost category.
Opportunities
1. Follow market penetration strategy by 1. Buell Product development producing low
O.1. Harley-Davidson have a
good brand value among its expanding presence in US and EURO price bikes approaching low income market
customers and in U.S people markets segment ( W.3 O.2 O.3)
2. Create more offerings capitalizing on low 2. Capitalizing on the growing International
O.2. Dealers are financing the Interest rates Market potential optimizing the manufacturing
purchase of used HD cost and accordingly recovering financial
motorcycles at low interest rates
position (W.1 O.3 O.2 )
O.3. The international heavy
weight motorcycles market is
growing
Threats
1. Direct R&D efforts to focus on producing 1. Down Size company's resources (W.1
T.1. Environmental protection
optimized oil consuming motors W.2 T.3)
laws (emissions and noise)
2. Open Foreign factory to gain international
T.2. High rise in the Oil prices market share at lower cost
T.3. Increase in Labor cost
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29. VRIO Analysis
• Valuable
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.
09/27/12 29

30. 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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31. Harley Davidson Capabilities
• Integrated technological resources
– Usage of Information system to insure 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
09/27/12 31

32. Strategic Recommendations
o Reinforce strategic alliance engagement with Asian distribution
network
– Lack of market expansion leads to few opportunities
o Create more attractive offering capitalizing on low interest rate
– Weak Performance in US
o Direct the R&D efforts optimizing the oil consuming engines
– High Rise of Oil & Environmental compliance
o Product development /Horizontal Diversification
– Leveraging on the growth of demand in the international motorcycle
market
o Improve Return on Equity/Capital/Assets /Stability)
– Higher turnover & sales
09/27/12 32

33. Strategies Analysis
o Strategy 1:
o Reinforce strategic alliance engagement with Asian distribution channels
• Lack of market expansion leads to few opportunities
o Implementation
 Invest time and persistence in order to successfully operate
in Asian market
 Create country based teams that are determined to make
wise cultural decisions.
 More involvement with foreign government through office of
trade of the US
 More participation in the world trade organization activities
09/27/12 33

34. Strategies Analysis
o Strategy 1:
o Reinforce strategic alliance engagement with Asian distribution channels
• Lack of market expansion leads to few opportunities
o Pro/Cons
PRO CONS
Increase Sales Significantly huge effort &
investment capital
Extend international market Long payback period which
presence enhancing brand might impact the financial
image position.
• Cooperative Business level strategy
09/27/12 34

35. Strategies Analysis
o Strategy 2:
o Create more attractive offering capitalizing on low interest rate
• Weak Performance in US
o Implementation
 Establish frame agreements with financial institutes for
funding & support HD Mania.
 Extend their marketing campaign through different type of
media (Social Media) and loyalty programs.
09/27/12 35

36. Strategies Analysis
o Strategy 2:
o Create more attractive offering capitalizing on low interest rate
• Weak Performance in US
o Pro/Cons
PRO CONS
Increase Sales Complication of reaching short/Mid term
agreement with financial institutes.
Sustain positive cash flow. Considerably marketing & media
(Current /Liquidity Ratio) expenses
Targeting lower income
market segment
• Cooperative Business level strategy
09/27/12 36

37. Strategies Analysis
o Strategy 3:
o Direct the R&D efforts optimizing the oil consuming engines
• High Rise of Oil and the Environmental compliance
o Implementation
 Joint R&D initiatives with Ford Motors R&D team for:
 Oil consumption reduction for HD motorcycles
 New Hybrid motors using alternative energy sources
(bio fuel and green energy)
09/27/12 37

38. Strategies Analysis
o Strategy 3:
o Direct the R&D efforts optimizing the oil consuming engines
• High Rise of Oil & Environmental compliance
o Pro/Cons
PROS CONS
Lower environmental Huge resources for R&D
emissions
Going Green initiatives Higher costs of
manufacturing
• Functional level strategy
09/27/12 38

39. Conclusion
• HD is working for international (Asia/Europe) expansion
and maintaining the American focus.
• HD has decided not to manufacture its bikes overseas to
uphold the image and reputation of “Made in USA”
brand.
• Increase diversity programming
• Bring HD heritage to the rest of planet
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40. Thank You !
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