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HARLEY-DAVIDSON STRATEGIC PLAN
Submitted by
Stacey Wagner
Prepared for
Professor Don Looney Business Policies and Strategies
Spring 2007
2
TABLE OF CONTENTS
VISION STATEMENT .................................................................................................... 3 MISSION STATEMENT ................................................................................................. 3 EXTERNAL ASSESSMENT ........................................................................................... 3
External Audit ................................................................................................................. 3 Porter’s Five Forces Analysis ......................................................................................... 7 External Factor Matrix .................................................................................................... 8
Table 1 ................................................................................................................ 8 Competitive Profile Matrix ............................................................................................. 9
Table 2 ................................................................................................................ 9 INTERNAL ASSESSMENT .......................................................................................... 10
Key Internal Forces ....................................................................................................... 10 Financial Ratio Analysis ............................................................................................... 12
Table 3 .............................................................................................................. 12 Internal Factor Evaluation Matrix ................................................................................. 16
Table 4 .............................................................................................................. 16 SWOT MATRIX ............................................................................................................. 17
Table 5 .............................................................................................................. 17 SPACE MATRIX ............................................................................................................ 18
Table 6 .............................................................................................................. 18 GRAND STRATEGY MATRIX ................................................................................... 20
Table 7 .............................................................................................................. 20 LONG-TERM OBJECTIVES AND STRATEGIES ................................................... 21 ANNUAL OBJECTIVES ............................................................................................... 21 PRO-FORMA FINANCIAL STATEMENTS .............................................................. 22
Table 8 .............................................................................................................. 23 Table 9 .............................................................................................................. 25 Table 10 ............................................................................................................ 26
BIBLIOGRAPHY ........................................................................................................... 28
3
VISION STATEMENT
We at Harley-Davidson are a worldwide manufacturer of motorcycles and related
products and focus on providing a unique lifestyle for our customers.
MISSION STATEMENT
At Harley-Davidson, we provide our customers around the world with an
aggressive outdoor lifestyle through superior products and service. Through modern
technology, we provide the latest in safety and environmentally friendly engineering in
our products. We focus on safety and harmony within the workplace. At Harley-
Davidson, we do not simply sell motorcycles; we improve our customers’ lives through
recreational opportunities.
EXTERNAL ASSESSMENT
External Audit
An external audit assesses the industry that Harley-Davidson operates in. The
U.S. motorcycle market value grew 7.7% from 2001-2005. Market volume grew 6.4% in
the same time. The U.S. market accounts for 25% of the global motorcycle market.
Honda and Yamaha are the other leading competitors, next to Harley-Davidson, in the
U.S. market. Market value is expected to grow 7.1% from 2005-2010. Market volume is
expected to grow 7.5% in the same time period.1
The motorcycle market value in Europe declined .8% from 2001-2005. Market
volume also decreased 1.6% in the same time period. More moped products are sold in
Europe than motorcycles. Honda and Yamaha have the largest market share in Europe.
1 “Motorcycles in the United States,” DataMonitor, November 2006.
4
Future market value is expected to increase 4.4% from 2005-2010. Market volume is
expected to increase 4.5%.2
From 2001-2005, market value for motorcycles in the Asia/Pacific region grew
9.2%. Market volume grew 8.3%. Two-thirds of products sold there are motorcycles;
one-third are mopeds. Honda has the largest market share. It is expected that market
value will increase 13.2% from 2005-2010, while market volume increases 9%.3
Other external factors that may affect Harley-Davidson include the economy.
Economic factors include the stock market, interest rates, inflation, and unemployment
levels. In the past year, the Dow Jones Industrial Average has risen 16%.4 Interest rates
increased only marginally in the same amount of time.5 Unemployment remained
unchanged at 4.4% in the last year. Inflation was up 2%.6 Overall, these factors indicate
a fairly strong U.S. economy and based on recent trends, this expected to continue.
Other external factors affecting Harley-Davidson include social, cultural, and
demographic changes. The average Harley owner is 47 years old and makes over
$80,000 per year.7 The U.S. population increased 1% from 2004 to 2005, while the
population over age 62 increased more than 2.5%. The median age of the U.S.
population increased from 36.2 to 36.4 in the same time period. The number of married
couples without children under the age of 18 stayed constant. The mean household
income increased over 4% to $62,556.8 As aging couples with excess income are Harley-
2 “Motorcycles in Europe,” DataMonitor, November 2006. 3 “Motorcycles in Asia-Pacific,” DataMonitor, November 2006. 4 CNN Money, <http://money.cnn.com>, accessed on April 17, 2007. 5 Federal Reserve, <http://federalreserve.gov>, accessed on April 17, 2007. 6 Bureau of Labor Statistics, <http://www.bls.gov>, accessed on April 17, 2007. 7 Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13, 2007. 8 U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007.
5
Davidson’s target market, the aging population growth and income growth are good signs
for the company.
The U.S. veteran population has increased by 1.1%.9 Veterans tend to be
motorcycle owners, and an increasing veteran population may be sign of market segment
growth for Harley.10 Another area of untapped segment of growth for Harley is women.
Over four million women have owned a motorcycle in the past, but only 635,000
currently do.11 Only 11% of Harley’s current buyers are female, but they are increasing
by .5% per year.12
Political, governmental and legal changes are important as well. The
Environmental Protection Agency (EPA) regulates automobile and motorcycle emissions.
These regulations were most recently revised in 2004. 13 Future revisions could
negatively impact the motorcycle industry. Another concern is the price of raw materials
for motorcycles. Steel prices increased 57% from 2003 to 2004, and aluminum increased
by 24% in the same time period.14 Further increases could force motorcycle companies
to pass the cost increases on to consumers, thus raising the price of the product.
Technology is constantly evolving. The widespread use of the Internet has
changed the way business is done. Communication across continents is easier and
cheaper than ever before. Computer-based inventory control systems could play a role in
managing motorcycle inventories. Currently Harley does not allow for transfer of
product between dealers, but a centralized computer system could make for an easy
9 U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007. 10 Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007. 11 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 12 Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13, 2007. 13 Environmental Protection Agency, <http://www.epa.gov>, accessed on April 17, 2007. 14 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.
6
transition.15 Technology also impacts design. Today’s motorcycles are more reliable
because of technological change. Modern motorcycles also are relatively free of oil
leaks, vibration, and are more comfortable than those of the past.16
Although Harley-Davidson has many competitors, its main competitors are Honda
and Yamaha based on their world-wide market share. Because Harley’s competitors are
more diversified, they are less vulnerable to industry changes. Honda and Yamaha also
offer products that sell well in the international markets compared to Harley. 17 Harley
products are more expensive than its competitors, but are known for service and
salability.18
Models of motorcycles available include custom, touring, performance, and
standard models. Custom is the largest market segment in the U.S., with 53.9% of all
motorcycles on the road. However, touring bikes have increased in popularity with each
year, now comprising 27.2% of registered bikes. From 2004 to 2005, this increase was
over 30%.19 Touring motorcycles are the most luxurious and easiest to ride of all models.
These models often include radios and cruise control. Victory, Honda, Suzuki, and
Harley have expanded their touring line of motorcycles to cater to the aging market.
Harley offers eight variations of the touring motorcycle.20
Victory entered into an agreement with Lehman Trikes to produce three-wheeled
motorcycles under the Victory brand. These products will be fully supported by Victory
warranty, and will be marketed to aging adults as a safer way to ride. The “Pit Boss” was
15 Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007. 16 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 17 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 18 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 19 Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13, 2007. 20 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.
7
released for sale on July 31, 2006. Harley entered a similar agreement with Lehman
Trikes on September 1, 2006.21
Porter’s Five Forces Analysis
The overall attractiveness of the motorcycle industry is average. The threat of
new competitors or supplier power is low, but consumers have the power to switch
brands and substitute products easily. There is also competition for market share among
rivals in the motorcycle industry.22
Rivalry among competing firms is fairly high in the motorcycle industry. Brand
image is very important in the industry and products frequently compete directly with a
product of another manufacturer. Potential entry of new competitors is somewhat low in
motorcycle manufacturing because of start-up costs and loyalty already established by
existing firms. It would be a difficult task to gain market share from the existing giants in
the motorcycle business. The bargaining power of suppliers is a relatively small threat as
there are more suppliers than manufacturers.
Potential development of substitute products is a threat to the motorcycle industry.
Replacement products for motorcycles include boats, snowmobiles, and RVs because
these are all luxury recreational items. Motorcycle consumers are likely to weigh a
purchase decision against a substitute product. Motorcycle consumers tend to fit a
specific demographic profile and have discretionary income; therefore, the entire
population is not a potential buyer. Thus, the bargaining power of consumers is also a
threat to motorcycle companies. 23
21 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 22 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 23 Ibid.
8
External Factor Matrix
Table 1
EFE Matrix Key External Factors Weight Rating Weighted Score Opportunities 1. Aging U.S. Population .20 4 .80 2. Strong U.S./Canadian market growth .20 4 .80 3. Increasing number of women riders .10 2 .20 4. Very strong growth in Asia .03 1 .03 5. Very strong growth in Mexico .03 1 .03 Threats 6. Aging U.S. Population .04 2 .08 7. Competitors are more diversified .10 1 .10 8. Union relations .05 2 .10 9. Declining European growth .05 2 .10 10. Availability of substitute products .20 1 .20 Total 1.0 2.44
Harley-Davidson excels at focusing on the baby-boomer motorcycle market
segment in the U.S.; however there are several opportunities that Harley is not using to its
full advantage. Very strong growth in the motorcycle industry is occurring in Asia and
Mexico, yet Harley-Davidson has not fully taken advantage of this market.24 Increasing
numbers of women ride motorcycles and yet only ten percent of Harley riders are
women. 25 These could be areas of potential growth for Harley.
Threats to Harley-Davidson include an aging U.S. population. While this factor is
considered an opportunity as well, it is a threat as the population ages and is eventually
unable to operate a motorcycle, thus extinguishing Harley’s largest market segment. The
contract with Lehman Trikes could counteract some of this effect. Though not a
significant threat because of Harley’s limited market share, the European motorcycle
24 “Motorcycles in Asia-Pacific,” DataMonitor, November 2006. 25 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.
9
industry is suffering from declining growth. Harley-Davidson competitors are more
diversified into markets other than motorcycles, which makes them less vulnerable to
fluctuations in the motorcycle industry.26 Also, relations with union workers are a threat
to the industry.27 The readily available substitute products to motorcycles are the biggest
threat to the industry and to Harley-Davidson.
Competitive Profile Matrix
Table 2
Competitive Profile Matrix Harley-Davidson Honda Yamaha
Critical Success Factors Weight Rating Weighted Score
Rating Weighted Score
Rating Weighted Score
Market share .15 3 .45 3 .45 3 .45
Financial position .05 4 .20 3 .15 3 .15
Price competitiveness .10 1 .10 3 .30 3 .30
Customer loyalty .20 4 .80 2 .40 2 .40
Global expansion .20 2 .40 4 .80 4 .80
Product quality .10 3 .30 4 .40 3 .30
Product selection .15 2 .30 4 .60 4 .60
Management .05 4 .20 4 .20 4 .20
Total 1.0 2.75 3.30 3.20
Customer loyalty is Harley-Davidson’s strongest competitive advantage. In
product quality and financial position, Harley is also strong. However, Harley is not as
strong as its competitors in some critical areas. Harley falls far behind Honda and
Yamaha in global market share of motorcycle products. In addition, Harley motorcycles
are not as competitively priced as other brands. Product selection is another area of
26 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 27 Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007.
10
weakness at Harley. While offering many products in the 1000cc+ category of
motorcycles, Harley lacks an array of smaller bikes. Also, Harley is not diversified into
other recreational lines such as watercraft and ATVs as many of its competitors are and is
thus more susceptible to fluctuations in the motorcycle market.28
INTERNAL ASSESSMENT
Key Internal Forces To determine Harley-Davidson’s strengths and weaknesses, an internal
assessment is required. Areas to be evaluated include: management, marketing, finance,
production and operations, research and development, and management information
systems (MIS).
Harley-Davidson offers a broad selection of 32 product models, has 650 dealers in
the U.S., and has the largest market share in the U.S. However, Harley only has 7.7% of
European market share (the second largest motorcycle market in the world), and 25.3%
of the Asia/Pacific region.29 Clearly, Harley-Davidson’s strengths are in the U.S. market,
as 80% of Harley’s net revenue comes from U.S. sales.30
Harley worked to improve its image over the years. In the 1960s, Harley was
viewed as sub-par when compared to British motorcycles. In the modern market, Harley
has a reputation for style and quality. Credit for this is due to the research and
development department, who implemented the trend towards quality for the company.
28 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 29 Ibid. 30 Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13, 2007.
11
Harley-Davidson also introduced water-cooled engines, fuel injection, and catalytic
converters to improve exhaust emissions.31
Brand image is critical in the motorcycle industry, and Harley’s strength in this
area is largely due to its marketing abilities in the U.S. market. Harley customers are
extremely loyal to their brand and 90% of Harley owners intend to purchase another
Harley. The production and operations department at Harley-Davidson has consistently
built reliable motorcycles for Harley customers. This consistency has helped sustain
brand image.32
Harley’s internal management and finance department is strong. Harley is a
financially sound company, largely due to effective management.33
Management information systems could be used to more effectively manage
inventory at Harley. Instead of allotting a certain number of products to each dealer,
Harley could use an enterprise-wide system to match inventory levels to demand. This is
currently one of Harley-Davidson’s few internal weaknesses. 34
31 Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007. 32 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 33 Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007. 34 Ibid.
12
Financial Ratio Analysis
Table 3
Financial Ratio Analysis Ratio Harley-
Davidson 2006
Harley-Davidson
2005
Harley-Davidson
2004
Honda 2006
Industry Average
Liquidity Ratios Current Ratio 2.23 3.6 2.79 1.07 2.04 Quick Ratio 1.56 2.18 1.37 .81 1.45 Leverage Ratios Debt to Equity Ratio .62 .39 .40 .87 .45 Long Term Debt to Equity Ratio .32 .32 .25 .39 .32 Times Interest Earned Ratio N/A N/A N/A 2.37 7.15 Activity Ratios Inventory Turnover 24.29 25.31 24.42 10.69 8.26 Fixed Assets Turnover 6.08 5.57 5.12 5.83 N/A Total Assets Turnover 1.15 1.06 1.02 1.00 1.25 Accounts Receivable Turnover 3.09 3.67 4.34 4.90 10.56 Profitability Ratios Gross Profit Margin 39.50 N/A N/A 28.60 41.82 Operating Profit Margin 25.91 N/A N/A 8.70 15.60 Net Profit Margin 16.86 N/A N/A 4.89 10.17 Return on Total Assets 19.34 17.87 17.05 4.87 12.28 Return on Stockholders’ Equity 35.72 30.45 28.73 15.29 23.72 Price Earnings Ratio 15.81 N/A N/A 12.36 20.30 Growth Ratios Sales 9.02 N/A N/A 14.95 5.67 Earnings Per Share 15.25 N/A N/A 36.18 14.30 Dividends Per Share 1.33 N/A N/A .76 1.84 Source: <http://www.reuters.com>, accessed on March 13, 2007.
13
Liquidity Ratios
0
0.5
1
1.5
2
2.5
3
3.5
4
2004 2005 2006
Current Ratio
Quick Ratio
Liquidity ratios measure a firm’s ability to turn short-term assets into cash.35
Harley-Davidson is doing better than the industry average in this category and
significantly better than its main competitor, Honda.
Leverage Ratios
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2004 2005 2006
Debt to Equity Ratio
Long Term Debt toEquity Ratio
35 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007.
14
Leverage ratios measure how much a firm is financed by debt.36 Harley-
Davidson is fairly close to the industry average on this measure, and is doing better than
Honda.
Activity Ratios
0
5
10
15
20
25
30
2004 2005 2006
Inventory Turnover
Fixed AssetsTurnover
Total Assets Turnover
Accounts ReceivableTurnover
Activity ratios measure how well a firm uses its resources.37 Harley is doing
especially well in inventory turnover, but falls below average in accounts receivable.
36 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007. 37 Ibid.
15
Profitability Ratios
0
5
10
15
20
25
30
35
40
2004 2005 2006
Return on TotalAssets
Return onStockholders’ Equity
Profitability ratios measure the effectiveness of management.38 Again, Harley is
doing much better than the industry and Honda in almost all of these measures with the
exception of the price earnings ratio and the gross profit margin, which fall a bit below
industry standards, although still ahead of Honda.
Growth ratios measure growth over a period of time.39 Harley is doing better than
the industry average in sales and earnings per share growth, but Honda is doing even
better. In dividends per share growth, Harley beats Honda, but both fall below industry
average. Clearly Harley-Davidson has financial strengths, but there are some areas to be
targeted for improvement.
38 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007. 39 Ibid.
16
Internal Factor Evaluation Matrix
Table 4
IFE Matrix Strengths Weight Rating Weighted Score 1. Customer retention .20 4 .80 2. Number of domestic dealers .15 4 .60 3. Domestic market share .15 4 .60 4. Product selection of +1000 cc motorcycles .10 4 .40 5. Financial position .10 4 .40 Weaknesses 6. International market share .10 1 .10 7. Number of international dealers .03 2 .06 8. Product selection in other segments .10 1 .10 9. Dealer inventory system .05 2 .10 10. Product cost .02 1 .02 Total 1.0 3.18 Harley-Davidson has a large number of repeat buyers. Harley has a large volume
of dealers in the U.S. and a large share of the U.S. market of motorcycle sales. The
company also offers several different products to suit different needs in the over 1000cc
category. However, Harley is much weaker in both Europe and Asia in number of
dealers and market share. One of the likely reasons for this is Harley’s limited offering
of smaller bikes that are more popular in international markets. Also, Harley’s brand
image in the U.S. is much more powerful to consumers than it is internationally.
17
SWOT MATRIX
Table 5
SWOT Matrix Strengths – S
1. Customer retention 2. Financial position 3. Product selection 4. U.S. market share 5. U.S. dealer network
Weaknesses – W 1. Dealer inventory system 2. International market share 3. Expensive product 4. Product selection 5. International dealers
Opportunities – O 1. Increasing # of women riders 2. U.S. industry growth 3. Aging population 4. Mexico industry growth 5. Asian industry growth
SO Strategies 1. Continue to expand U.S. market share (S4, O2) 2. Expand marketing to female riders (S1, O1) 3. Expand marketing to baby boomers (S1, O3)
WO Strategies 1. Balance inventory levels to meet demand (W1, O2) 2. Pursue foreign markets more aggressively (W2, O4, O5) 3. Expand product line to cater to female and aging riders (W4, O1, O3)
Threats – T 1. Union relations 2. Aging U.S. population 3. Competitor diversification 4. Declining European growth 5. Availability of substitutes
ST Strategies 1. Focus on securing new markets as baby boomers age (S4, T2) 2. Focus market growth in the U.S. rather than European markets (S4, T4)
WT Strategies 1. Expand product line to compete directly with competitors (W4, T3) 2. Open foreign factory to gain international market share and lessen reliance on unions (W2, T1)
18
SPACE MATRIX
Table 6
SPACE Matrix Ratings Financial Strength (FS) Leverage +6 Liquidity +4 Return on investment +3 Working capital +4 Industry Strength (IS) Growth potential +5 Profit potential +4 Capacity utilization +4 Ease of entry +5 Environmental Stability (ES) Competitive pressures -4 Risk -2 Price range of competing products -5 Demand fluctuations -2 Competitive Advantage (CA) Market share -2 Loyalty -1 Product life cycle -1 Product quality -1 Conclusion ES Average (-13/4) -3.25 CA Average (-5/4) -1.25 IS Average (18/4) +4.50 FS Average (17/4) +4.25 x-axis (CA + IS) +3.25 y-axis (ES + FS) +1.00
19
Conservative FS Aggressive +6 +5 +4 +3 +2 +1 X CA -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 IS -1 -2 -3 -4 -5 -6 Defensive ES Competitive Harley-Davidson falls into the aggressive quadrant of the SPACE Matrix.
Aggressive strategies include market penetration and development, product development,
backward, forward, and horizontal integration, related and unrelated diversification, and
combination strategies.40
40 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007.
20
GRAND STRATEGY MATRIX
Table 7
Grand Strategy Matrix
Rapid Market Growth Quadrant II Quadrant I X Weak Strong Competitive Competitive Position Position Quadrant III Quadrant IV
Slow Market Growth Harley-Davidson is in Quadrant I of the Grand Strategy Matrix because of its
strong competitive position in the motorcycle market as well as the market’s strong
growth. The motorcycle industry is growing world-wide, and in some markets, growth is
quite strong. Harley has a very strong competitive position in North American markets,
and has a presence in international markets. According to this matrix, Harley would be
21
wise to pursue market development strategies, market penetration, product development,
forward, backward, and horizontal integration, as well as related diversification.41
LONG-TERM OBJECTIVES AND STRATEGIES
Long-term objectives will attempt to sustain Harley-Davidson’s competitive
advantage and keep it a viable competitor in the motorcycle industry.42 For the next three
years, Harley should use its current strengths to expand its U.S. market share through
market penetration, expand sales to female riders through market development, revise the
U.S. dealer network to allow for transfer of units between dealers to improve market
penetration and expand its product line to cater to aging riders through product
development.
Market penetration seeks to increase market share for present products in present
markets through greater marketing efforts. Market development introduces present
products into new markets. Product development increases sales by developing or
improving products.43
ANNUAL OBJECTIVES
To ensure Harley-Davidson’s long-term objectives are achieved, annual
objectives are matched to long-term objectives.44 To expand U.S. market share through
market penetration, Harley will set an annual objective to grow U.S. sales by 15% by
May 31, 2008. Also, $5,000,000 will be allocated to marketing efforts to ensure
attainment of this goal. Although this is an annual objective, it is anticipated this
41 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007. 42 Ibid. 43 Ibid. 44 Ibid.
22
objective could be modified slightly for each of the next three years as needed to achieve
U.S. market penetration.
To expand sales to female riders through market and product development, Harley
will set an annual objective to double the number of female Harley buyers in the U.S. to
20% of total buyers by May 31, 2008. Also, Harley’s marketing budget for targeting
female riders will be increased by $5,000,000. Again, this is an annual objective, but it is
anticipated this objective could be modified slightly for each of the next three years as
needed to strengthen Harley’s number of female buyers.
Harley will aim to improve its U.S. dealer network to allow for transfer of units
between dealers to improve market penetration. The date for this objective to be
complete is by December 31, 2007. Enhancements will be made to the current inventory
management system as needed until this goal is reached. Input will be largely based on
dealer and management input.
To expand its product line to cater to aging riders through product development,
Harley will set an annual objective of introducing one new product for aging riders by
May 31, 2008. This product may be built through the contract with Lehman Trikes.
PRO-FORMA FINANCIAL STATEMENTS
In order to implement objectives, Harley-Davidson will need to determine the cost
of implementation for each objective. Expanding its U.S. market share will increase
gross profit by approximately $400,000 annually. Repairing the U.S. dealer network will
result in $50,000 less inventory on hand each year. Expanding the product line to cater to
aging riders will contribute to increased operating expenses of about $90,000 but will
also contribute to the increase in gross profit.
23
Table 8
Pro Forma Balance Sheet (Values in Thousands) 12/31/2006 12/31/2007 12/31/2008 12/31/2009 Assets Current Assets Cash and Equivalents 238,397 250,000 250,000 250,000 Short Term Investments 658,133 660,000 660,000 660,000 Net Receivables 143,049 145,000 145,000 145,000 Finance Receivables held for sale 547,106 550,000 550,000 550,000 Finance Receivables held for investment 1,554,260 1,500,000 1,500,000 1,500,000 Inventory 287,798 250,000 200,000 150,000 Other Current Assets 121,890 120,000 120,000 120,000 Total Current Assets 3,550,633 3,475,000 3,425,000 3,375,000 Long Term Investments Finance Receivables held for investment 725,957 750,000 750,000 750,000 Other Long-Term Assets 1,255,560 1,250,000 1,250,000 1,250,000 Total Non-Current Assets 1,981,517 2,000,000 2,000,000 2,000,000 Total Assets 5,532,150 5,475,000 5,425,000 5,375,000 Liabilities and Shareholders’ Equity Current Liabilities Accounts Payable 763,186 760,000 760,000 760,000 Current Portion of Finance Debt 832,491 1,000,000 1,100,000 1,200,000 Total Current Liabilities 1,595,677 1,760,000 1,860,000 1,960,000 Non-Current Liabilities
24
Finance Debt 870,000 870,000 870,000 870,000 Postretirement Health Care Benefits 201,126 200,000 200,000 200,000 Other Long-Term Liabilities 108,610 100,000 100,000 100,000 Total Non-Current Liabilities 1,179,736 1,170,000 1,170,000 1,170,000 Total Liabilities 2,775,413 2,930,000 3,030,000 3,130,000 Total Shareholders’ Equity 2,756,737 2,545,000 2,395,000 2,245,000 Total Liabilities & Shareholders’ Equity 5,532,150 5,475,000 5,425,000 5,375,000 Notes: Inventory on hand will decrease by $50,000 per year when the new inventory adjustment system is implemented. Liabilities will increase by borrowing short-term funds to increase sales and marketing efforts in the U.S. at $100,000 per year.
Source: <http://investor.harley-davidson.com>, accessed on March 13, 2007.
Table 9
Pro Forma Income Statement
(Values in Thousands) 12/31/2006 12/31/2007 12/31/2008 12/31/2009 Total Revenue 5,800,686 6,670,000 7,670,000 8,821,000 Cost of Revenue, Total 3,567,839 4,102,000 4,717,000 5,424,000 Gross Profit 2,232,847 2,568,000 2,953,000 3,397,000 HDMC Operating Expenses 818,490 900,000 990,000 1,090,000 Corporate Operating Expenses 22,561 23,000 24,000 25,000 Total Operating Expenses 841,051 923,000 1,014,000 1,115,000 HDMC Operating Income 1,414,357 1,668,000 1,963,000 2,307,000 HDFS Operating Income 210,724 217,000 223,000 230,000 Operating Income 1,602,520 1,885,000 2,186,000 2,537,000 Total Other Income/Expenses Net 21,720 22,000 22,000 22,000 Earnings Before Interest and Taxes 1,624,240 1,907,000 2,208,000 2,559,000 Income Tax Expense 581,087 680,000 788,000 913,000 Net Income from Continuing Operations 1,043,153 1,227,000 1,420,000 1,646,000 Net Income 1,043,153 1,227,000 1,420,000 1,646,000 Notes: Anticipated total revenue will increase by 15% because of sales volume increase of 15%. COGS will stay fixed at 61.5% of revenue. Operating expenses will increase 10% to cover new R&D expenses. Corporate expenses will increase 3% to cover inflation. HDFS will increase 3% per year to cover inflation. Income tax rate will stay fixed at 35.7%.
Source: <http://investor.harley-davidson.com>, accessed on March 13, 2007.
Table 10
Balanced Scorecard Objectives Measure or
TargetTime
Expectation Primary
Responsibility Customers Increase number of female buyers 20% of total
Harley sales May 2008 Sales/Marketing
Increase U.S. market share 15% sales increase
May 2008 Sales/Marketing
Pursue foreign markets 10% sales increase
July 2009 Sales/Marketing
Managers/Employees Improve management/union relations Complete
negotiations before contract expiration
By end of next contract expiration
Management
Conduct an employee benefits review and add programs currently not offered but desired by employees
Review current benefits offerings with employees
May 2008 Human Resources
Form a team to evaluate foreign factory locations
Formation of team
December 2007
Management
Operations/Processes Negotiate supplier contracts to gain favorable terms and exclusivity where possible (if not already in place)
Set up contracts with current suppliers and renegotiate existing contracts
July 2010 Procurement
Conduct an operations process analysis to look for efficiency improvements
Document each functional process
July 2009 Operations Supervisors
Improve U.S. dealer network by implementing a computerized inventory system
Allow for transfer of product between dealers
December 2007
Management/MIS
Community/Social Responsibility Offer volunteering opportunities for employees
Implement volunteering program
December 2007
Human Resources
Donate percentage of profits to community charities
Determine charities in cities of operations
December 2007
Management
Implement corporate recycling of all materials
Institute bins for products not currently being recycled
December 2007
Human Resources
27
Business Ethics/Natural EnvironmentMeet or beat all emissions standards Comply with all
current and future emissions standards
May 2008 Research and Development
Comply with noise regulations Comply with all noise ordinances
July 2009 Research and Development
Conduct annual audits in accordance with the Sarbanes-Oxley Act of 2002
Conduct yearly audit
December 2007
Finance
Financial Increase U.S. sales 15% sales
increase May 2008 Sales/Marketing
Increase sales to female riders 20% of total Harley sales
May 2008 Sales/Marketing
Increase international sales 10% sales increase
July 2009 Sales/Marketing
The Balanced Scorecard allows for a balance of priorities between short and long term
goals, as well as among stakeholders and management.45 A copy of the scorecard is distributed
to every department to ensure accountability for each department’s goals. Progress meetings will
be conducted every quarter with all accountable parties in attendance. Executive management
will be responsible for ensuring that all goals are implemented in a timely manner.
45 Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007.
28
BIBLIOGRAPHY Bureau of Labor Statistics, <http://www.bls.gov>, accessed on April 17, 2007. CNN Money, <http://money.cnn.com>, accessed on April 17, 2007. “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall,
New Jersey, 2007. Environmental Protection Agency, <http://www.epa.gov>, accessed on April 17, 2007. Federal Reserve, <http://federalreserve.gov>, accessed on April 17, 2007. Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March
13, 2007. Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March
27, 2007. “Motorcycles in Asia-Pacific,” DataMonitor, November 2006. “Motorcycles in Europe,” DataMonitor, November 2006. “Motorcycles in the United States,” DataMonitor, November 2006. Motorcycle Industry Financials, <http://www.reuters.com>, accessed on March 13, 2007. Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007.
