Harvard Case - Harley-Davidson, Inc.: Motorcycle Manufacturer or Financing Company?
"Harley-Davidson, Inc.: Motorcycle Manufacturer or Financing Company?" Harvard business case study is written by Gregory S. Miller, Jacob Cohen. It deals with the challenges in the field of Accounting. The case study is 21 page(s) long and it was first published on : Sep 9, 2004
At Fern Fort University, we recommend that Harley-Davidson refocus its strategy to prioritize its core competency as a motorcycle manufacturer while strategically leveraging its financial services arm to enhance customer experience and drive profitability. This approach involves a balanced strategy of optimizing manufacturing processes, innovating product offerings, and leveraging its financial services to create a holistic customer experience.
2. Background
Harley-Davidson, a renowned motorcycle manufacturer, faced a strategic dilemma in the early 2000s. Despite its iconic brand and loyal customer base, the company struggled with declining sales and profitability. This was attributed to factors like increased competition, changing consumer preferences, and a growing reliance on its financial services arm, Harley-Davidson Financial Services (HDFS), for revenue. HDFS, while initially intended to support motorcycle sales, had become a significant source of income, raising questions about Harley-Davidson's core identity.
The case study focuses on the company's strategic crossroads, examining whether it should prioritize its manufacturing operations or continue to rely on its financial services arm. The main protagonists are the company's leadership, including the CEO, board members, and executives, who are tasked with making strategic decisions to ensure the company's long-term success.
3. Analysis of the Case Study
To analyze Harley-Davidson's situation, we can employ a framework that considers both internal and external factors:
Internal Analysis:
- Financial Performance: Analyzing Harley-Davidson's financial statements, including the balance sheet, income statement, and cash flow statement, reveals that HDFS contributed significantly to revenue and profitability. However, this dependence raised concerns about the company's reliance on a non-core business.
- Core Competencies: Harley-Davidson's core competency lies in motorcycle manufacturing, design, and brand building. Its iconic image and loyal customer base are valuable assets.
- Organizational Structure: The company's organizational structure and design influenced its decision-making processes. The growing influence of HDFS within the company's structure could potentially overshadow the core manufacturing operations.
- Employee Incentives: The company's employee incentive programs were crucial in aligning employee behavior with strategic goals. Evaluating the alignment of incentives with the company's overall strategy was essential.
External Analysis:
- Competitive Landscape: Harley-Davidson faced intense competition from other motorcycle manufacturers, both domestic and international. Understanding the competitive landscape was crucial for developing a winning strategy.
- Consumer Trends: Changing consumer preferences, particularly among younger demographics, presented a challenge for Harley-Davidson. The company needed to adapt its product offerings and marketing strategies to appeal to a wider audience.
- Economic Conditions: Economic downturns could impact consumer spending, affecting motorcycle sales. Understanding economic trends was crucial for forecasting demand and managing risk.
4. Recommendations
Harley-Davidson should implement a balanced strategy that prioritizes its core competency as a motorcycle manufacturer while strategically leveraging its financial services arm:
1. Reinvigorate Motorcycle Manufacturing:
- Product Innovation: Invest in research and development to create new and innovative motorcycle models that appeal to a wider customer base, especially younger generations.
- Manufacturing Efficiency: Implement lean manufacturing principles and activity-based costing to optimize production processes, reduce costs, and improve efficiency.
- Global Expansion: Explore new markets, particularly in emerging economies, to expand its customer base and mitigate dependence on mature markets.
- Brand Revitalization: Reinforce its iconic brand image through targeted marketing campaigns and community engagement initiatives.
2. Leverage Financial Services Strategically:
- Customer-Centric Approach: Integrate HDFS into the customer experience, offering financing options as a value-added service to enhance motorcycle purchases.
- Financial Performance Measurement: Implement robust financial performance metrics to track the profitability of HDFS and ensure its alignment with the overall company strategy.
- Risk Management: Implement robust risk management practices to mitigate potential financial risks associated with HDFS.
3. Organizational Restructuring:
- Clearer Structure: Realign the company's organizational structure to ensure a clear separation between manufacturing and financial services, while fostering collaboration between the two.
- Cross-Functional Teams: Establish cross-functional teams to facilitate communication and knowledge sharing between different departments, fostering a more integrated approach.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Prioritizing motorcycle manufacturing aligns with Harley-Davidson's core competency and historical mission.
- External Customers and Internal Clients: Leveraging financial services to enhance the customer experience strengthens customer loyalty and drives sales.
- Competitors: Focusing on innovation and efficiency allows Harley-Davidson to compete effectively in a dynamic market.
- Attractiveness ' Quantitative Measures: The recommended strategy aims to improve profitability and enhance shareholder value through increased sales, reduced costs, and a more efficient allocation of resources.
6. Conclusion
Harley-Davidson's strategic dilemma highlights the importance of aligning business operations with core competencies and market realities. By prioritizing its manufacturing operations, innovating product offerings, and strategically leveraging its financial services, the company can regain its position as a leading motorcycle manufacturer while enhancing its customer experience and driving long-term profitability.
7. Discussion
Other alternatives not selected include:
- Divesting HDFS: This would eliminate the dependence on financial services but could alienate customers who rely on financing options.
- Focusing solely on HDFS: This would prioritize financial services over manufacturing, potentially jeopardizing Harley-Davidson's core identity and brand image.
Key risks associated with the recommended strategy include:
- Execution Challenges: Implementing the recommended changes requires effective leadership, strong communication, and a commitment to change management.
- Market Volatility: Economic downturns and changes in consumer preferences could impact demand for motorcycles and financial services.
8. Next Steps
To implement the recommended strategy, Harley-Davidson should take the following steps:
- Develop a Detailed Implementation Plan: This plan should outline specific actions, timelines, and responsible parties for each initiative.
- Secure Board Approval: Gain the support of the board of directors for the proposed strategy and implementation plan.
- Communicate Effectively: Communicate the new strategy to employees, customers, and stakeholders to ensure transparency and buy-in.
- Monitor Progress and Adjust as Needed: Regularly track progress against key performance indicators and adjust the strategy as necessary to address changing market conditions and achieve desired results.
By executing this plan, Harley-Davidson can navigate its strategic crossroads and position itself for long-term success in the dynamic motorcycle industry.
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Case Description
Harley-Davidson manufactures and sells motorcycles. It also provides financing for retail purchases and dealer stock. Although Harley's performance has been very strong, analysts and the press have questioned its use of a special-purpose entity to sell securities collateralized by its financing activities. Harley's management must decide how to balance the street's suspicion of this activity with its strategy of providing a "whole motorcycle experience" and the high level of profits created by the current arrangement.
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