Created by: Reginald A. Bruce, Ph.D.
College of Business and Public Administration
University of Louisville
Louisville, KY 40292
(502) 852-4682 (voice)
(502) 852-7557 (fax)

With the growing global economy, companies are looking for ways to improve their market share. Many excellent firms have learned how to beat their competitors through the implementation of new management, marketing, and/or manufacturing techniques. Harley-Davidson is one of those excellent companies whom has challenged traditional ideas. We intend to show through this case study that any company can follow Harley-Davidson's techniques and lead themselves to excellence.

Company History

Harley-Davidson Motorcycle Company was established in 1903 by William Harley and Walter, William, and Arthur Davidson, who built their first three motorcycles in a shed in Milwaukee. In 1909, the company introduced its trademark bike; a 2 cylinder, v-twin engine (the fastest motorcycle at that time), able to reach speeds of 60 mph. However, a few years later the competition was becoming stiffer. During World War I, the demand for United States motorcycles overseas grew tremendously. As a result, Harley-Davidson became a leader in innovative engineering in the 1920's. With the introduction of the front brake and "teardrop" gas tanks, Harley was quickly developing its mystic appearance. The industry, which was thriving after World War I, was diminishing quickly as a result of the Great Depression. As one of only two remaining motorcycle companies, Harley-Davidson survived because of exports and sales to the police and military.

Representative of the World War I motorcycle market, Harley-Davidson prospered from military purchasing during World War II. Over 90,000 cycles were built for the military which elevated their production to record levels and earned them the coveted Army-Navy "E" award for excellence in war time production. After the war, Harley went from producing military to recreational bikes. Harley developed and introduced the K-model (1952), Sportster ("Superbike", 1957), and Duo-Glide (1958) motorcycles. By 1953, Harley-Davidson was the last remaining major motorcycle manufacturer in the US.

Harley-Davidson was taken over by the American Machine and Foundry (AMF) in 1969. AMF put the company up for sale in the late 1970's due to a gross reduction in sales. The reduction in sales was representative of a poor level of quality in the Harley bike compared to their Japanese counterpart. In 1981, thirteen members of the Harley-Davidson management team purchased the company from AMF in a leveraged buy-out. But, within the first year, overall demand for motorcycles dropped dramatically and Harley's share of this market also continued to drop. This even greater reduction in sales for Harley resulted in a large inventory of unsold products. Harley was aware they would no longer be able to continue their business at their current production level and operating cost. Therefore, production was cut drastically, and more than 1,800 of the 4,000 employees were let go. In a move to help the floundering United States motorcycle industry in 1983, President Ronald Reagan increased tariffs on large Japanese motorcycles from 4.4 percent to 49.4 percent. But this increase was only effective for five years and would decline annually.

Minutes away from bankruptcy in 1985, CEO Richard Teerlink convinced lenders to accept a restructuring plan. Using management principles adopted from the Japanese, new marketing strategies, and manufacturing techniques, Harley improved quality and began the long battle to regain its market share. In 1987, one year before the tariffs on Japanese heavyweight motorcycles were scheduled to end, Harley announced they no longer needed special tariffs to compete with the Japanese motorcycle giants; showing confidence in the new system.

Today Harley-Davidson Inc., an employer of 4,694 workers, consists of Harley-Davidson Motor Company based in Milwaukee and Eagelmark Financial Services Inc. based in Chicago, Illinois. In addition, there are nearly 600 dealerships throughout the United States. Harley's commitment toward continuous improvement is exemplified in these contrasting financial statements in the table below.

Although Harley was very profitable during World War I and World War II, this status quickly changed during the 1970's. After the leveraged buy-out, Harley's new owners realized that in order to make the necessary improvements, they had to determine what went wrong. After careful analysis, the management team developed the following list of practices which were main contributors to the problems previously experienced:

• Corporate management focused mostly on short term returns.
• Management did not listen to its employees or give them responsibility for the quality of what they made.
• High inventories of parts gobbled up cash and reduced productivity.
• Belief in quick fixes for problems, such as throwing in computers and state-of-the-art machinery to improve productivity.
• High break-even point that left the company vulnerable to unpredictable market fluctuations.
• Management that woke up too late to the threat of foreign competition because of the "it can't happen here" syndrome.

As with anything in life, recognizing the problems to any given situation is only half the battle. The development of methods for improvements and gaining company wide support for implementation was the key. The first accomplishment was for management to learn the importance of relationships. Strong relationships with workers can aid in the advancement of new company practices. A good example can be seen in the following conversation between a machinist and the Vice President of the power train plant at Harley. "You are new here, aren't you?" asked the machinist. "Let me buy you a cup of coffee!" (Filipczak 38). It was a simple gesture which quickly taught the new VP how important "relationships" were in the workplace; one of the major components of Harley-Davidson's corporate culture.

Harley's new management realized to survive they needed to become a perpetual learning and improving organization. Open communication between all levels of employees was essential. Everyone needed to understand their roles and the consequences their roles contributed to the company. But to develop employees to a greater degree, management had to get them to understand the business environment of the corporation.

Harley-Davidson wanted the ability to develop processes and people which would ensure employees would have the capability for rapid, effective change based on an understanding of the whole business environment in which they operated. In order for that to happen, Harley-Davidson realized that individuals needed to have a shared vision of the company values: tell the truth, be fair, keep your promises, respect the individual, and encourage intellectual curiosity. Management needed to earn the respect and trust of their employees. Incorporating all of these high moral values into the entire company structure and expecting nothing less from employees, at all levels, helped emphasize Harley's commitment to its team of workers. Since Harley's workers were unionized, this could have been a major problem. But, because the unions stuck to Harley-Davidson when times were tough, Harley today sticks to them. The unions even censure their workers for shoddy performance. This commitment allowed for Harley to switch to "self-managed" teams. The plan was to create semi-autonomous workgroups, who were cross-trained and could set their own work schedules. Therefore, Harley-Davidson created the Harley-Davidson Learning Center. This is a facility dedicated to life-long learning. Its primary role is to serve employees who want to keep their skills current. In some cases, this means remedial training in basic skills, but mostly the Learning Center is a place to come with requests for specific job-training courses.

Continuous Improvement

Harley-Davidson is driven by a constant vision of what an excellent company should be: one that is never satisfied with the status quo but is always searching for ways to do things better. This is best exemplified by a manager's comment, "The day we think we've arrived is the day we should all be replaced by managers of greater vision" (Reid 38). All companies can and should learn from this position and adopt the idea of continuous improvement.

Continuous improvement demands involvement from employees. Management's dilemma was how to align employee motivation with company goals. In Harley-Davidson's case, all employees take part in a gain-sharing program and are paid cash incentives for attaining and maintaining quality, profitability, and product delivery goals. In 1995, more than 2,000 of Harley's 4,694 employees took training and education programs from the Harley-Davidson Learning Center. These courses helped the company to be more competitive and to foster employees' personal growth and development. Extensive team-building has taken place at all levels of the company, including team-building for union leaders, negotiation committees, and stewards. Open communication, at all levels, is used as a major key to achieving teamwork and employee participation. For example, engineers are located right in the plant, within walking distance of machine operators. The practice of open communication is also represented in the relationship between top management and the union.

Harley Davidson has an untypical relationship with the union. Continuous improvement techniques could have been stopped if the company did not have a good relationship with the union. The union viewed management as a partner instead of an adversary. Management's good-faith dealing's with the union was a factor in this special relationship. Harley-Davidson has a history of in-sourcing; it tries to bring as much work as possible into the plant to forestall any layoffs. The union has considerable control over what kind of work is outsourced to other companies. So the union is able to create a "job security" by choosing the work that is done in-house. Bob Klebar, the president of the union stated, "When times are good, we´d outsource it. But if things get tougher, we´d look at those projects and maybe bring them in-house to keep the employment" (Filipczak 41). He also mentioned that "instead of focusing on what we think we have a right to, his people work closely with the production department, and everyone concentrates on the final customer. It really binds us together and makes us go in the right direction" (Filipczak 41). Teerlink, Harley-Davidson´s CEO, said that total employee involvement (EI) cannot exist until management and labor can agree that they have a mutual goal: the long-term success of the company (Reid 173). In this joint process, joint union-management study groups identify issues or problems and then research all possible solutions.

Management Involvement

Management through its words and actions must demonstrate continuous improvement of quality and efficiency is a way of life, not just another "program". Management must be firmly committed to the people-building philosophy - the belief that employees are thinking, rational human beings and therefore should be encouraged to develop and grow. All management must be totally committed to the EI program and demonstrate that commitment by fostering a mutual trust between employees and management. Don't let management "Solutions" become the problem: their job isn't to hand down solutions to every problem. Management's obligation is to communicate the problem. When management and labor develop solutions together, they both have a stake in making those solutions work (Reid 172).

At Harley-Davidson, they believe being a leader in business includes contributing to the betterment of society. They support community causes as a corporation, and they encourage employees to get involved as donors or volunteers. Charitable contributors are investments in the quality of life, benefiting all their stakeholders: customers, employees, suppliers, shareholders, government, and the community at large.

Eagelmark Financial Services

Eagelmark Financial Services, a majority-owned subsidiary, provides private label financial services programs, including Harley-Davidson Credit. Harley-Davidson Credit, Eagelmark's largest division provides wholesale financing and insurance programs, including motorcycle floor-planning, parts and accessories trade acceptance and commercial insurance brokerage to Harley-Davidson's US dealer network. It also provides the private Harley Card, an exclusive credit card for use in Harley-Davidson dealerships. In addition, Harley-Davidson offers its domestic dealers from time to time quarterly special discounts and/or 120 day delayed billing terms through Eagelmark in order to carry sufficient parts and accessories inventories and to counteract the seasonality of the parts and accessories business.

Harley-Davidson enjoyed a monopoly in the motorcycle industry for many decades. In the 1970's, Japanese manufacturers flooded the market with high quality, low priced bikes. From 1973 - 1983, Harley's market share went from 77.5% to 23.3% with Honda having 44% of the market by 1983. Harley-Davidson could not compete on price against the Japanese motorcycle producers, so it had to establish other market values and improve quality.

Simultaneously, the United States consumer base was undergoing a revolution which mandated consumer driven products. Harley had to change from a company which dictated what its customers could have to strategies based on direct input from customers. A marketing philosophy was developed based on the customers desires, gathered through surveys, interviews and focus groups.

Image

"The real power of Harley-Davidson is the power to market to consumers who love the product" (Executive Excellence 6). Harley-Davidson's President and CEO, Richard Teerlink says the bike represents to America, "the adventurous pioneer spirit, the wild west, having your own horse, and going where you want to go - the motorcycle takes on some attributes of the iron horse. It suggests personal freedom and independence" (Executive Excellence 6). Brand loyalty for Harley-Davidson is emotional. They are considered more than motorcycles-they are legends. It is an American icon brand. The Harley-Davidson symbol is based on a pattern of associations that include the American flag and the eagle; reflective of the passion and freedom Americans enjoy.

It is difficult to define an average Harley-Davidson buyer. The demographics range from a blue-collar worker to a high-power executive located all over the world. The common thread is

a desire to escape the routine and become anyone you like. While their competitors base their advertising on product technology and features, Harley promotes: a mystique appearance, individualism, the feeling of riding free, and the pride of owning a legend. With Harley, you can live out your fantasies, as well as experience camaraderie with fellow bikers.

Customer Relations

When a person buys a Harley-Davidson motorcycle, they receive a free 1-year membership to the Harley Owners Group (HOG), which was developed in 1983 as a program to keep people active with their Harley. Simultaneously, it keeps the company close to its customer. HOG has 295,000 worldwide members, 900 local chapters and is the largest company-sponsored motorcycle enthusiast group. They conduct four US national rallies, two touring rallies and 44 state rallies. These rallies encourage people to use their motorcycles and to share in the excitement of riding. The people are given demonstration rides, have the opportunity to ask questions, register their bikes and buy merchandise. According to Michael D. Keefe, director of HOG, these rallies are considered "more like customer bonding. If people use the motorcycle, they'll stay involved" (Berry, 104 ). " What the Harley management crew, who are masters of marketing, do well is listen to their customers. The result is that Harley cannot keep up with demand at current production levels" (Croghan 31). Company executives learn from their customers by maintaining a database to track consumer desires. Company officers spend almost every weekend from April through October at motorcycle events and dealerships accumulating this information.

Promotion

The primary promotional tool for Harley-Davidson motorcycles are the HOG activities. Not only does it serves as a customer relations device, but as a way to showcase and demonstrate new products. As discussed in the image section, Harley develops a strong impression within consumers. In 1983, the company developed a trademark licensing program which provides income for dealers and the factory while expanding the total Harley experience. The company program put a stop to bootlegged Harley Davidson merchandise and offered priceless advertising.

Harley has capitalized on the fact its product/image is chic. There are numerous examples of fashion models draped over the bikes and wearing company T-shirts. The company is starting to advertise in magazines geared to the general public. Twice a year, a Fashions and Collectibles catalog is produced with various Harley merchandise. Clothes sold in stores such as Bloomingdales and J.C. Penny exposes Harley-Davidson to people who may not have thought about visiting a dealership. Another marketing strategy, Harley-Davidson Cafes, have been opened in or near many dealerships to lure people into the showroom. In fact, the Harley-Davidson Cafe in New York City won one of the 1994 Restaurant and Institutions Interior Design Awards for its American appearance. Also, Harley-Davidson's advertising techniques are so successful they were one of the 1995 finalists of the Kelly Award for advertising. The company is able to promote the sale of its motorcycles by the financial services offered by Eagelmark, a wholly owned subsidiary. The dealerships are becoming a one stop shop for bikes, accessories, clothing and financing.

Product

Harley found its strength was in the heavyweight division. They also identified and exploited mini niches, such as customized, touring, sport/touring and sport/street motorcycles, in the heavyweight end of the market. When Harley-Davidson was formed, it only offered one color of motorcycle - gray and three basic styles. The company learned it needed to give the customers a choice and now offers a variety of models, including Sportsters, Super Glides, Low Riders, Softails, Sport Glides, Tour Glides and Electra Glides, in numerous vivid colors. Many of these models and changes were developed when Harley realized their customers were customizing the bikes and none of the revenue from the work was going to the company. When a style is changed or developed, Harley always develops it around their signature image to make sure that the product is not only a high quality piece of equipment but is also charismatic.

Price

Harley-Davidson quickly learned it could not compete with the foreign manufacturers on cost. Not only did Honda have a low priced product, it was able to defeat Harley in advertising 40-1. Therefore, Harley developed a strategy of value over price. This was created through the development of mini-niches and the heavy construction of the parts. Japanese manufacturers used plastic while Harley used steel, which is able to be rebuilt and rebore. Harley was careful not to exceed demand in production of their motorcycles. Currently, people must wait six to eighteen months for a new motorcycle and the price for a year-old Harley is 25% to 30% higher than a new one. By not being able to meet demands, an attitude of must-have has developed. Therefore, Harley has plans to double capacity to 200,000 motorcycles annually by 2003.

Distribution

Harley-Davidson motorcycles are sold by 1,065 dealers worldwide. The company owns 54 percent of the market share in the USA, 16 percent in Japan, 10 percent in Europe, and 38 percent in Australia. The foreign markets could be larger, but the company has an agreement with American dealers not to sell more than 30 percent of the bikes overseas, if the domestic demand is not met. The company implemented in 1983 a program to concentrate on helping its dealers develop the up-to-date business skills they need to sell motorcycles more effectively. The headquarters sponsored training programs are dubbed "Harley-Davidson University". The dealers are considered to be business partners and the headquarters plays an active role in developing programs, financing improvements, implementing support and management consultants. The dealers also invest their own money into these programs which allows them to feel like apart of the company. Harley-Davidson treats the dealers not only as partners, but also as customers. Harley has developed a very effective marketing strategy, but it is the responsibility of manufacturing to produce high quality and reliable motorcycles.