Introduction & Situation Analysis
Harley-Davidson has been a widely admired fixture in the motorcycle industry since the “golden years” of American motorcycle manufacturing (1900-1931), when at times there were as many as 200 different brands of American-made motorcycles. By 1930, the market had consolidation and the “big three” – Harley-Davidson, Indian Motorcycle, and Excelsior Supply – together accounted for 90% of the market (Ballon, 1997, p. 43). The Great Depression nearly destroyed the industry – wiping out all of the smaller manufacturers, forcing Excelsior out of business in 1931, and leaving Indian severely weakened until it too, ceased operations in 1953 (Ballon, 1997).
When leisure and industrial product conglomerate AMF Inc. acquired Harley-Davidson in 1969, Harley was used to having the American market pretty much to itself. Focusing on short-term profits and sales volume rather than R&D or quality, AMF nearly tripled Harley-Davidson’s production from 15,000 in 1969 to 1974 (Wheelen, et al., 2000). During the 1970s, while Harley-Davidson turned out “noisy, oil-leaking, heavily vibrating, poorly finished, and hard-to-handle machines”, a number of less expensive, quality-minded Japanese competitors made inroads into the US market (Wheelen et al., 2000, p. 15-1). By the end of the decade, the Harley image was tarnished by poor quality and strong competition. In 1981, 14 managers (including Vaughn Beals, then head of the Harley division) conducted a leveraged buyout of the company. Over the next decade, Beals led Harley-Davidson on a comprehensive turnaround, focusing on quality control, productivity, manufacturing excellence, and a culture of worker participation (Young & Murrell, 1998).
By the mid-1990s, Harley-Davidson was enjoying record sales and profits. In 1993, Harley expanded into the sport/performance motorcycle market by acquiring a 49% interest in Buell Motorcycle Company. That same year, Harley acquired a 49% interest in Eaglemark Financial Services and by 1996, Harley owned Eaglemark outright. By 1997, Harley had acquired a majority stake in Buell. Meanwhile, in keeping with management’s decision to focus on motorcycles, the company discontinued its Transportation Vehicles operations. 1997 was a banner year for the company financially. Net income reached $174 million on net sales of $1.76 billion, up from $104 million in net income on $1.2 billion of net sales in 1994 (Wheelen et al., 2000, p. 15-32). Harley-Davidson’s market share had also recovered nicely from the competitive challenges of the 1970s. Harley’s share of the heavyweight motorcycle market in 1997 was 49.1%; the nearest competitor’s (Honda) was just 18.5% (Wheelen et al., 2000, p. 15-18). However, Harley-Davidson was also becoming a victim of its own success. In 1995 and 1995, demand exceeded production capacity, and in 1996 it was reported that some dealers had waiting lists as long as two years for popular models such as the Heritage Springer (Ballon, 1997, p. 50). While Harley was struggling to keep up with demand, new American-based competitors, including Polaris and Excelsior-Henderson, were gearing up to enter the US heavyweight motorcycle market (Miller, 1998; Ballon, 1997). Harley has expanded its production capacity but it is not yet know whether production will keep up with demand.
This paper provides a case analysis and case solution to a strategic management case study on Harley-Davidson, Inc. The time setting for the case study is early 1998, as the company prepared for its 95th anniversary. The case focuses on Harley’s strategic position in the late 1990s and the challenges it faces as it looks towards competing in both the American and the overseas market with its core motorcycle business. Rather than summarizing the case, the following considers the details of the case throughout the analysis. Problem Definition