HARLEY-DAVIDSON STRATEGIC PLAN
Submitted by Stacey Wagner
Prepared for Professor Don Looney Business Policies and Strategies Spring 2007
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 Ev aluation 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
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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 HarleyDavidson, 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.
3
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. “Motorcycles in Asia-Pacific,” DataMonitor, November 2006. 4 CNN Money, , accessed on April 17, 2007. 5 Federal Reserve, , accessed on April 17, 2007. 6 Bureau of Labor Statistics, , accessed on April 17, 2007. 7 Harley-Davidson Investor Relations, , accessed on March 13, 2007. 8 U.S. Census Bureau, , accessed on April 17, 2007. 3
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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, , accessed on April 17, 2007. 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, , accessed on March 13, 2007. 13 Environmental Protection Agency, , accessed on April 17, 2007. 14 “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 10
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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, , accessed on March 13, 2007. 20 Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.
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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. “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 23 Ibid. 22
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External Factor Matrix Table 1 EFE Matrix Weight
Key External Factors Opportunities 1. Aging U.S. Population 2. Strong U.S./Canadian market growth 3. Increasing number of women riders 4. Very strong growth in Asia 5. Very strong growth in Mexico Threats 6. Aging U.S. Population 7. Competitors are more diversified 8. Union relations 9. Declining European growth 10. Availability of substitute products Total
Rating
Weighted Score
.20 .20 .10 .03 .03
4 4 2 1 1
.80 .80 .20 .03 .03
.04 .10 .05 .05 .20 1.0
2 1 2 2 1
.08 .10 .10 .10 .20 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 25
“Motorcycles in Asia-Pacific,” DataMonitor, November 2006. “Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.
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industry is suffering from declining growth. Harley-Davidson competitors are more diversified into markets other than motorcycles, which makes the m 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 a re 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. Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27, 2007. 27
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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. Ibid. 30 Harley-Davidson Investor Relations, , accessed on March 13, 2007. 29
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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.
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Financial Ratio Analysis Table 3
Ratio
Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Debt to Equity Ratio Long Term Debt to Equity Ratio Times Interest Earned Ratio Activity Ratios Inventory Turnover Fixed Assets Turnover Total Assets Turnover Accounts Receivable Turnover Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Stockholders’ Equity Price Earnings Ratio Growth Ratios Sales Earnings Per Share Dividends Per Share
Financial Ratio Analysis HarleyHarleyHarleyDavidson Davidson Davidson 2006 2005 2004
Honda 2006
Industry Average
2.23 1.56
3.6 2.18
2.79 1.37
1.07 .81
2.04 1.45
.62 .32 N/A
.39 .32 N/A
.40 .25 N/A
.87 .39 2.37
.45 .32 7.15
24.29 6.08 1.15 3.09
25.31 5.57 1.06 3.67
24.42 5.12 1.02 4.34
10.69 5.83 1.00 4.90
8.26 N/A 1.25 10.56
39.50 25.91 16.86 19.34 35.72 15.81
N/A N/A N/A 17.87 30.45 N/A
N/A N/A N/A 17.05 28.73 N/A
28.60 8.70 4.89 4.87 15.29 12.36
41.82 15.60 10.17 12.28 23.72 20.30
9.02 15.25 1.33
N/A N/A N/A
N/A N/A N/A
14.95 36.18 .76
5.67 14.30 1.84
Source: , accessed on March 13, 2007.
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Liquidity Ratios 4 3.5 3 2.5 Current Ratio
2
Quick Ratio
1.5 1 0.5 0 2004
2005
2006
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 0.7 0.6 0.5 Debt to Equity Ratio 0.4 Long Term Debt to Equity Ratio
0.3 0.2 0.1 0 2004
2005
2006
35
Fred R. David, Strategic Management: Concepts and Cases, 11th ed., Pearson Prentice Hall, New Jersey, 2007.
13
Leverage ratios measure how much a firm is financed by debt.36 HarleyDavidson is fairly close to the industry average on this measure, and is doing better than Honda. Activity Ratios 30 25
Inventory Turnover
20
Fixed Assets Turnover
15
Total Assets Turnover
10 Acc ounts Receivable Turnover
5 0 2004
2005
2006
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.
14
Profitability Ratios 40 35 30 Return on Total Assets
25 20
Return on Stockholders’ Equity
15 10 5 0 2004
2005
2006
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.
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Internal Factor Evaluation Matrix Table 4 IFE Matrix Strengths Weight 1. Customer retention .20 2. Number of domestic dealers .15 3. Domestic market share .15 4. Product selection of +1000 cc motorcycles .10 5. Financial position .10 Weaknesses 6. International market share .10 7. Number of international dealers .03 8. Product selection in other segments .10 9. Dealer inventory system .05 10. Product cost .02 Total 1.0
Rating 4 4 4 4 4
Weighted Score .80 .60 .60 .40 .40
1 2 1 2 1
.10 .06 .10 .10 .02 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.
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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 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)
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)
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Weaknesses – W 1. Dealer inventory system 2. International market share 3. Expensive product 4. Product selection 5. International dealers 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) 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)
SPACE MATRIX Table 6 SPACE Matrix Ratings Financial Strength (FS) Leverage Liquidity Return on investment Working capital Industry Strength (IS) Growth potential Profit potential Capacity utilization Ease of entry Environmental Stability (ES) Competitive pressures Risk Price range of competing products Demand fluctuations Competitive Advantage (CA) Market share Loyalty Product life cycle Product quality Conclusion ES Average (-13/4) CA Average (-5/4) IS Average (18/4) FS Average (17/4) x-axis (CA + IS) y-axis (ES + FS)
+6 +4 +3 +4 +5 +4 +4 +5 -4 -2 -5 -2 -2 -1 -1 -1 -3.25 -1.25 +4.50 +4.25 +3.25 +1.00
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Conservative
FS +6
Aggressive
+5 +4 +3 +2 +1 CA
-6
-5
-4
-3
-2
-1
X +1
+2
+3
+4
+5
+6 IS
-1 -2 -3 -4 -5
Defensive
-6 ES
Competitive
Harley-Davidson falls into the aggressive quadrant of the SP ACE 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.
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GRAND STRATEGY MATRIX Table 7 Grand Strategy Matrix Rapid Market Growth Quadrant II
Quadrant I
X
Weak Competitive Position
Strong Competitive 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
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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.
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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.
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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 Short Term Investments Net Receivables Finance Receivables held for sale Finance Receivables held for investment Inventory Other Current Assets Total Current Assets
238,397 658,133 143,049 547,106 1,554,260 287,798 121,890 3,550,633
250,000 660,000 145,000 550,000 1,500,000 250,000 120,000 3,475,000
250,000 660,000 145,000 550,000 1,500,000 200,000 120,000 3,425,000
250,000 660,000 145,000 550,000 1,500,000 150,000 120,000 3,375,000
Long Term Investments Finance Receivables held for investment Other Long-Term Assets Total Non-Current Assets
725,957 1,255,560 1,981,517
750,000 1,250,000 2,000,000
750,000 1,250,000 2,000,000
750,000 1,250,000 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 Current Portion of Finance Debt Total Current Liabilities
763,186 832,491 1,595,677
760,000 1,000,000 1,760,000
760,000 1,100,000 1,860,000
760,000 1,200,000 1,960,000
Non-Current Liabilities
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Finance Debt Postretirement Health Care Benefits Other Long-Term Liabilities Total Non-Current Liabilities
870,000 201,126 108,610 1,179,736
870,000 200,000 100,000 1,170,000
870,000 200,000 100,000 1,170,000
870,000 200,000 100,000 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: , accessed on March 13, 2007.
Finance Debt Postretirement Health Care Benefits Other Long-Term Liabilities Total Non-Current Liabilities
870,000 201,126 108,610 1,179,736
870,000 200,000 100,000 1,170,000
870,000 200,000 100,000 1,170,000
870,000 200,000 100,000 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: , accessed on March 13, 2007.
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Table 9 Pro Forma Income Statement (Values in Thousands)
12/31/2006
12/31/2007
12/31/2008
12/31/2009
Total Revenue Cost of Revenue, Total Gross Profit
5,800,686 3,567,839 2,232,847
6,670,000 4,102,000 2,568,000
7,670,000 4,717,000 2,953,000
8,821,000 5,424,000 3,397,000
818,490 22,561 841,051
900,000 23,000 923,000
990,000 24,000 1,014,000
1,090,000 25,000 1,115,000
HDMC Operating Income HDFS Operating Income Operating Income
1,414,357 210,724 1,602,520
1,668,000 217,000 1,885,000
1,963,000 223,000 2,186,000
2,307,000 230,000 2,537,000
Total Other Income/Expenses Net Earnings Before Interest and Taxes
21,720 1,624,240
22,000 1,907,000
22,000 2,208,000
22,000 2,559,000
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
HDMC Operating Expenses Corporate Operating Expenses Total Operating Expenses
Income Tax Expense
Table 9 Pro Forma Income Statement (Values in Thousands)
12/31/2006
12/31/2007
12/31/2008
12/31/2009
Total Revenue Cost of Revenue, Total Gross Profit
5,800,686 3,567,839 2,232,847
6,670,000 4,102,000 2,568,000
7,670,000 4,717,000 2,953,000
8,821,000 5,424,000 3,397,000
818,490 22,561 841,051
900,000 23,000 923,000
990,000 24,000 1,014,000
1,090,000 25,000 1,115,000
HDMC Operating Income HDFS Operating Income Operating Income
1,414,357 210,724 1,602,520
1,668,000 217,000 1,885,000
1,963,000 223,000 2,186,000
2,307,000 230,000 2,537,000
Total Other Income/Expenses Net Earnings Before Interest and Taxes
21,720 1,624,240
22,000 1,907,000
22,000 2,208,000
22,000 2,559,000
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
1,227,000
1,420,000
1,646,000
HDMC Operating Expenses Corporate Operating Expenses Total Operating Expenses
Income Tax Expense
1,043,153
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: , accessed on March 13, 2007.
Table 10
Objectives Customers Increase number of female buyers Increase U.S. market share Pursue foreign markets
Managers/Employees Improve management/union relations
Balanced Scorecard Measure or Target
Time Expectation
Primary Responsibility
20% of total Harley sales 15% sales increase 10% sales increase
May 2008
Sales/Marketing
May 2008
Sales/Marketing
July 2009
Sales/Marketing
Complete negotiations before contract expiration
By end of next contract expiration
Management
Table 10
Objectives
Balanced Scorecard Measure or Target
Customers Increase number of female buyers Increase U.S. market share Pursue foreign markets
Managers/Employees Improve management/union relations
Conduct an employee benefits review and add programs currently not offered but desired by employees Form a team to evaluate foreign factory locations Operations/Processes Negotiate supplier contracts to gain favorable terms and exclusivity where possible (if not already in place)
Conduct an operations process analysis to look for efficiency improvements Improve U.S. dealer network by implementing a computerized inventory system
Community/Social Responsibility Offer volunteering opportunities for employees Donate percentage of profits to community charities Implement corporate recycling of all materials
Time Expectation
Primary Responsibility
20% of total Harley sales 15% sales increase 10% sales increase
May 2008
Sales/Marketing
May 2008
Sales/Marketing
July 2009
Sales/Marketing
Complete negotiations before contract expiration Review current benefits offerings with employees Formation of team
By end of next contract expiration May 2008
Management
December 2007
Management
Set up contracts with current suppliers and renegotiate existing contracts Document each functional process Allow for transfer of product between dealers
July 2010
Procurement
July 2009
Operations Supervisors
December 2007
Management/MIS
Implement volunteering program Determine charities in cities of operations Institute bins for products not currently being recycled
December 2007
Human Resources
December 2007
Management
December 2007
Human Resources
Human Resources
Business Ethics/Natural Environment Meet or beat all emissions standards
Comply with noise regulations Conduct annual audits in accordance with the Sarbanes-Oxley Act of 2002 Financial Increase U.S. sales Increase sales to female riders Increase international sales
Comply with all current and future emissions standards Comply with all noise ordinances Conduct yearly audit
May 2008
Research and Development
July 2009
Research and Development Finance
15% sales increase 20% of total Harley sales 10% sales increase
May 2008
Sales/Marketing
May 2008
Sales/Marketing
July 2009
Sales/Marketing
December 2007
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.
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BIBLIOGRAPHY Bureau of Labor Statistics, , accessed on April 17, 2007. CNN Money, , 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, , accessed on April 17, 2007. Federal Reserve, , accessed on April 17, 2007. Harley-Davidson Investor Relations, , 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, , accessed on March 13, 2007. Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. U.S. Census Bureau, , accessed on April 17, 2007.
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