Harley Davidson - Strategic Audit - Essay Example

Harley Davidson- Strategic Audit INTRODUCTION The present paper is an audit report on the Harley Davidson group, which initially aims to focus on analyzing the existing, strategic, critical and influential factors on the company's operation. The report subsequently focuses on proposing possible alternatives to these current practices and methods, and ascertains the feasibility of adopting & implementing each of these alternatives. It also focuses on how to implement the selected alternatives and also provides guidelines to evaluating the performance of the affected entities upon the implementation of the alternatives and provides a framework for maintaining these options under control. All along the report takes into account the numerical figures of various parties & entities involved with Harley Davidson. STRATEGIC FACTORS It is a matter of simplicity that the prime factor that would govern the success of any motor company such as Harley Davidson would be the quality of the bikes produced. Quality is a single determinant of a company, which is why most major and successful corporations spend so much money in research & development in order to improve the quality of the product. The results of the CAD system at HD (Harley Davidson) can be seen in this regard, with the breakeven achieved by the sales of just 35,000 units in 1986 from the earlier 53,000. This is a major factor for the company's survival during the 80s in that it has succeeded in reducing the number of defects in its products by stepping up development activities. One of the most important factors of any company is the financial assets & liabilities of the company. IF we look at the consolidated figures of HD (Exhibit 5 B), we will find that the while the net identifiable assets of HD have risen by 47%, the corresponding figures for the depreciation and the Capital expenditures has been 35% and 75% respectively within a gap of 2 years in the recent past (between 1999 and 2001). The major cause of concern in this regard is therefore, the rise in the net capital expenditures, which is a point that requires thought. The motorcycle market generally comprises four main segments: Standard Performance Touring Custom. In spite of having these four different types of markets, the company has focused its activities on just two areas namely- touring and custom. Generally, it is expected that a company would like to try its hand out in all possible domains, but what remains surprising is as to why HD has limited to these two sectors over all these years. Custom-built bikes are the dream of any individual- be it young or old. But in spite of this, most companies including HD continue to charge exorbitant amounts for building custom made bikes. The figures are much more significant for HD, which charges around 50% more than its nearest competitors in this sector. This has been the reason for the mere 15% share of the company in this area on a global basis. Though waiting times have reduced drastically, both for the customers as well as the dealers, it has not come to a zero level as of now. This according to industry gurus is one area of HD, where the company should shed its complacent mindset (assuming that the customer will never turn away). The company must therefore, devise strategies to reduce this time gap further, which could eventually lead to higher sales and will enable HD to capture a larger share in the market and enable it to tighten the noose on its competitors. But, in order for HD to be able to make any progress in this regard, it would have to revise and revamp its existing demand & supply chain, with respect to its suppliers of raw materials and components. We sincerely recommend HD not to resort to 'channel stuff' its dealers as the sales are dying sown, and must instead devise alternate strategies. The dealers in this regard concern another problem with the selling of bikes at a premium, with customers having to pay up to $4000-5000 in addition to the price of the bike. This is because HD has never made any real efforts to monitor the functioning of its dealers even for a single time, and this is one of the prime reasons for any drop in sales. Hence, HD must lay emphasis on constant monitoring of the dealer. Overall, there has been an increase of 15.7% in the shipment of bikes, but these can be increased considerably only if HD's management and administration takes an initiative to improve the demand and supply chain as also ascertain greater control over its dealers' activities. The company has been successful in using it's licensing, which is proving to be a source of extra income requiring minimal efforts. Therefore, we advise the company to maintain its stand in this regard and grab any such lucrative offers. The company has taken a positive stance by encouraging the setting up of numerous clubs and has also displayed hunger for sustainable & competitive growth by entering into collaborations with other market players like the Ford motor company. With the advent of the age of the Internet and with its gaining popularity among common people, we sincerely feel that there is scope for immense growth for the company if it were to utilize the services offered by it. This can be attributed to the limited presence of HD in contrast to other companies like Honda etc., which has a global presence, which bolsters their market share on an international basis. Thus, HD is today regarded as a regional company, and is not seen upon as a major global competitor. HD mainly sells its vehicles through fully owned outlets, which number around 633. Even the company's apparel is available only at these exclusive outlets. The company has allowed only allowed a small portion of its spares to be sold under other retail outlets and as such, it is seen as a negative approach on the part of the company. Harley Davidson's financial wing, HDFS (Harley Davidson Financial Services) is involved in providing finance to its dealers as well as its customer for a host of purposes and it is appreciated for this act, more so as it has enabled itself to provide wholesale finance to its dealers. But in order to thrive in the market and succeed, any company has to have a firm customer base, and this where we feel that the company can still strive for achieving reputation and enhance its market image. As most of the steel that HD uses for building its bikes is procured from European countries, the ensuing steel tariffs have put the company into some trouble, as speculation is rife that there would be some retaliation from the European union in opposition to bush's legislation. The company therefore, needs to be vigilant about any such events that may take place in the near future. The company needs to concentrate upon improving its current practices with respect to competition and Safety measures. Although competition is dependent on a number of factors such as price, quality and customer preference, the onus is on the company to improve its image and woo the customers into buying its goods which is considered the best and most ethical weapon to offer effective and healthy competition. The company must also devise new strategies to offer more help to customers by way of finance and loans etc. It has also been seen that there is a steady rise in the number of deaths among Harley riders (around 40% in 2001from 14% in 1990), and the reason that has figured has been attributed to the ageing of the traditional Harley riders. This can be reduced if the company takes any initiative in addition to the existing practices. ALTERNATIVES & IMPLEMENTATION This section proposes to discuss the possible alternatives to the existing practices, which have been discussed above. First and foremost, the company must take the initiative to improve upon its existing research & development facilities, by ensuring that all entities that are involved with the development of the final product are actively involved in the development of the product. This helps in fostering relationships among workers, designers and suppliers, which enables the effective exchange of critical thoughts and knowledge, thereby enabling better product development and improvement. The company must also assess its global standing and must take steps immediately to ensure that necessary changes are made to enable the company to venture onto new and untested territories. A possible option could be to venture into countries in the developing world like china and India, which have been emerging as trendsetters in the recent past with their economic prosperity. Then once again, the company would have to rethink its demand and supply chain, with respect to procuring raw materials, increasing market share and effective transportation of the finished items to the desired markets. All such changes have to be decided upon by considering the prime constraints of cost, schedule and effort. The company also has to rethink its exiting practice of manufacturing bikes, which cater to a certain segment of the motorbike industry. Given the respect that the brand HD commands, it would not be difficult for HD to start catering to other sectors also, but again this is possible if the company sheds its trademark attitude motto of concentrating on delivering touring and custom-built bikes. Once again, along with venturing into other domains, HD also needs to rethink its current approaches on the safety of the customer and the quality of the components used in building the bikes. The company needs to forge stronger ties with its suppliers as well as the customers, so that the existing deficiencies with respect to timing delays and schedules are nullified, thereby ensuring increased sales per unit time as well as a reduction in the maintenance per unit after release. The enhanced cooperation between HD and supplier will ensure better coordination and improves efficiency within both parties. The Internet can be utilized in this regard, with the supplier being provided an interface for enabling him to remain updated on the material requirements of HD in the days to come as well as enable the customer to book orders as well as track developments through the World Wide Web (benefits of e-commerce). The company must always strive to improve the manufacturing process. Some of the key areas, which call for attention in this regard, are: Capacity of output. Product quality. Cost reduction. Ability to adapt to any kind of change. To achieve this and improve upon them further, HD must concentrate upon consolidating its position in the domains in which has been a major player till date along with ensuring that it is able to gain enough customer support and able to establish itself in newer and untested sectors of the market. All this is possible through effective use of popular means of reaching the masses like advertisements etc. For reducing costs and improving quality, it is best advised that these be achieved through the procurements of the necessary components from the local markets itself, which will ensure that the operating costs are at a minimum and will thereby add to the cause. The company may look at expansions in this regard, with particularly laying emphasis on venturing into such markets where there is no significant competition as of now, and which will allow HD enough time to consolidate its position in that new market. In addition, the manufacturing techniques may also need a revamp, as and when the need arises, which is usually the case when any new & cost-effective technology hits the market. The company must not forget the workers of the company, who are its backbone. As such, the company must offer special incentives and bonuses on a regular basis to its employees. The company must encourage the formation of unions, which will provide the workers with an option to address their problems in an efficient manner. There is also the additional danger of any lawsuits being filed against the company. But, the company has nothing to worry as it can counter any such threats but provided that it has adopted a majority of the feasible solutions proposed above. The number of units that were financed by HDFS has increased from 21% in 2000 to 31% in 2001, which is a phenomenal increase. If the company continues to provide better financing options and loans to its dealers and customers, then the company does not have to worry facing any competition to its financial wing (HDFS) from other banks and financial institutions. And last but not the least, the report would like to mention that there has been an increase of 15000% in HD's share since its inception. The shares have remained firm even in the presence of an economic recession, and this just goes to show the faith of the markets in HD. Thus, HD must strive to live up to its reputation, and this can possibly happen if HD continues to register similar results in the times to come, which is possible only when the recommended measures are analyzed and adopted, at least in a majority if not all of them. EVALUATION AND CONTROL What does HD do in order to implement the above recommendations This explained in the current section. The company needs to conduct a formal meeting wherein the proposed alternatives must be discussed. Then, according to Robert M Grant, Ken Neupert & Patrick N Malcolmson (2000), each possible alternative must be thoroughly analyzed and critically examined and a decision must be taken whether the company may go head with implementing the alternative or not. Generally, the management of the company takes into account the following aspects into account in order to analyze the feasibility of any alternative: The cost of implementation The time taken for recovering the investment. The effort needed for implementation. The quality of the expected output. The benefits of the proposed alternative over the existing one. Etc. Upon the selection of the set of feasible alternatives, the requisite wings of the company must be entrusted the responsibility of implementing the proposed alternatives, which may involve certain cost & effort. This is known as the implementation of the alternative. But any such alternative must not be immediately combined with the external existing framework, unless it is thoroughly tested in the real world and examined for any inherent faults and shortcomings. Such an analysis may usually take a considerable amount of time, which may take some time. During this period, all flaws that are generated must be corrected and the system must re-tested again and again until the affected parties are convinced that there is no more room for error within permissible limits. In addition to evaluation of the proposed alternatives, the company must also devise mechanisms to revert from any unforeseen breakdowns (Rich Teerlink & Lee Ozley, 1998). Such breakdowns usually occur, as it was not possible to identify it during its feasibility testing and evaluation stages. Under such circumstances, the associated wing must possess requisite mechanisms and guidelines in order to nullify and overcome the generated breakdown. CONCLUSION The present report has strived to identify the existing practices that are being followed in the current framework of the Harley Davidson Inc. and its subsidiaries, and aims to propose requisite alternatives, which we think are feasible enough, so that they may prove beneficial to the company if properly considered, tested and implemented effectively. The report proposes to outline such alternatives in brief, and we feel that such alternatives abound in number, but what really matters is the correct identification of the requisite one among the handful available, and its proper incorporation into the existing setup. REFERENCES 1) Rich Teerlink & Lee Ozley (1998), More Than a Motorcycle: The Leadership Journey at Harley-Davidson. Cambridge: Harvard University Press. 2) Robert M Grant, Ken Neupert & Patrick N Malcolmson (2000), Cases in Contemporary Strategy Analysis. Malden: Blackwell Publishing. Read More