Strategic Management: Group 8 MOD-E12014

Siyabonga Titi

Pieter Taljaard

Werner Petrick

Roxanne Stegen

Afsana Nundeekasen

EXECUTIVE SUMMARY

MACRO

COMPETITORS

CUSTOMER

INTERNAL -

COMPANY

SWOT

INDUSTRY

BUSINESS MODEL

FRAMEWORK

STRATEGIC PERSPECTIVE

CONCLUSIONS AND

RECOMMENDATIONS

MACRO EXTERNAL ANALYSIS

MACRO EXTERNAL ANALYSIS: SUSTAINABLE

DEVELOPMENT GOALS

Achieve gender equality and empower

all women and girls

Ensure access to

affordable, reliable,

sustainable and

modern energy for all.

Build resilient infrastructure, promote inclusive and sustainable industrialisation, and foster innovation

Take urgent action to combat

climate change and its

impacts (taking note of

agreements made by the

UNFCCC forum)

MACRO EXTERNAL ANALYSIS: EMERGING TECHNOLOGYEmerging

Technologies

Disruption

Watch

Plateau

reached

in #

Years What does it mean

Autonomous vehicles 5-10 Driverless car, self-driving car, robotic car

Wearable user

interfaces 5-10 How a system represents itself to its user, usually via graphics, text and sound.

Machine-to-machine

communications 5-10 direct communication between devices using any communications channel, wired and wireless.

Biometrics

authentication

methods 5-10 unique biological characteristics of individuals to verify for secure access to electronic systems.

Location intelligence 2-5 BI tool capability that relates geographic contexts to business data.

Speech recognition 2-5 Inter-disciplinary sub-field of computational linguistics

MACRO EXTERNAL ANALYSIS: PESTEL ANALYSIS

Social-Cultural• Lifestyle changes towards greener and more environmentally friendly solutions• Consumer activism towards greener solutions• Age distribution of population of HD owners

Technological

•Energy supply

•Industry spend on R&D

•New products

•Hot trends in technology

Political-Legal•Introduction of new tax laws, specifically carbon taxes and carbon trading•Increased political will to resolve sustainability and environmental issues•Desire to be less dependent on the use of oil as source of energy Economical

•Increasing energy and

fuel costs, highly volatile

due to oil prices and

increasing being taxed

•Externalities, pollution

costs not paid by end

user

•Long term increase in oil

prices

•Buyers shift towards

cleaner lower emissions

motor cycles

Ecological

• Regulation on emission levels

• Pollution• Increasing green and

sustainability awareness amongst more affluent population

MACRO EXTERNAL ANALYSIS: STAKEHOLDER ANALYSISKey stakeholders Core expectations Primary interaction mechanism Strategic implications

Customers

Unique patented experience, provided in an ethical and

professional manner, whilst complying with health and

safety, and other regulations.

Deliver on promise to “fulfil dreams of personal

freedom”

HD successfully interacts with

owners through HOGs club at rallies,

through dealers during sales and

service touchpoints.

Highly loyal customer base - become

part of the HD family. More than just a

customer.

Suppliers/Sub-contractors

Transparency, limit bull whip effect. Ethical business

processes. Long term supply agreements. Limited

number of qualified suppliers. Procurement channels and deliveries

Assist suppliers in improving their

supply chain by sharing information on

HD demand to limit bull-whip effect

and thus increasing supplier's internal

efficiencies and profitability.

Employees

Promotion of employee development, internal codes of

conduct, standard operating procedures, health and

safety in the workplace. Internal web based long

distance learning programs, employee bursary and

sponsorship to the HD mechanic clinic.

Daily personal interaction, social

media, training events, clear and

communication ie new letters.

Invest in highly qualified people as

they are the drivers behind success.

HD operates mega factories that are

heavily automated and specialised.

Environment

Elimination of waste, noise reduction, water

sustainability, reduction in energy intensity,

environmental leadership.

Management of the HVAC systems in factories

News, social media, community

events

Corporate Social environment

Contribute to the environment

Community

Market share growth, sustainable earnings growth,

improving financial metrics, share price growth, deliver

on expectations. Example “Renew the Ride” program.

Annual reports, annual general

meetings, market presentations and

donations to their MDA and social

programs. Drive financial growth

Shareholder

Market share growth, sustainable earnings growth,

improving financial metrics, share price growth, deliver

on expectations

Annual reports, annual general

meetings, market presentations Drive financial growth

Government Compliance with regulations

Various interactions, health

inspections, tax payment Understand changes in regulations

INDUSTRY ANALYSIS

$-2,000.00

$-

$2,000.00

$4,000.00

$6,000.00

$8,000.00

$10,000.00

-1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

Ave

rag

e C

ost

per

Bik

e

Forecast All Bikes CAGR 2014-2019

Asia Pacific N/America Europe

Size of bubble indicates

overall market value

`

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

HD

M

ark

ets

hare

%

Heavy Bike Sales CAGR 2012-2014

Asia Pacific Europe USA

Size of bubble indicates number

of heavyweight bikes sold in 2014

Industry Size HD Market Share

Key Insights

•Opportunity: Heavy bike sales market share is small in the fast growing Asia-Pacific market and HD has a 25% market share. The volume of

heavy bike sales should increase as the middle class emerges in this market which is anticipated to create substantial additional volumes.

•Opportunity: HD has a very small market share in the substantial European market for heavy bikes. An aggressive marketing strategy could

yield additional market share from its current low level of 12%.

•Threat: HD has over 50% market share in the US heavy bike segment making them dominant and a target for competitors

INDUSTRY ANALYSIS: INDUSTRY SIZE & MARKET SHARE

INDUSTRY ANALYSIS: INDUSTRY DRIVING FORCES

Industry Driving Forces Motorcycle Industry Implications for Harley-Davidson Demand Competition Profitability

Changes in an industry

long-term growth rates

Long term growth of

industry to be at 2% and

growth in heavyweight

bikes to be flat. Aging

target market.

HD's main product range is heavyweight bike and the

slow forecasted growth will influence sales volumes

Changes in who buys the

product and how they use

it

Main growth expected in

light and moped bikes in

developing markets, used

as main mode of transport

HD's products lean more towards the leisure segment and not

used as a main mode of transport which means that they will

be excluded from the forecasted growth in this segment.

Growing buyer

preference for

differentiated products

instead of a commodity

product .

Apart from industry

segments where the

motorcycle is the primary

mode of transport there

seem to be a growing

demand for differentiated

products.

HD offer a differentiated product range which speaks well

to a growing number of consumers that prefer unique

products and have the means to pay a premium to get

such products.

Regulatory influences and

government policy

changes

Increasing trend of

regulatory restrictions on

carbon emissions and

noise pollution.

HD's marketing focuses on the experience and includes noise

levels and high performance both which will face increased

regulation and could diminish the uniqueness of the HD

experience.

Changing societal

concerns, attitudes and

lifestyles

Increasing trend of societal

awareness of pollution.

Increasing global middle-

class population that can

afford leisure activities like

motorcycling

Increased societal awareness around the environment

will have the same negative impact on HD as increased

regulation. Increasing middle-class looking for leisure

activities creates an opportunity for HD to increase

volumes

INDUSTRY ANALYSIS: PORTERS 5 FORCES

MODERATE

MODERATE

Bargaining Power

of Buyers

Buyer power in

this market is

weakened by a

high level of

product

differentiation and

customer loyalty

with respect to

dominating brands

Threat of New Entrants

For new entrants to the market,

setting up a production facility

involves large capital outlay thus

constituting a significant entry

barrier and high fixed cost.

Hig

h

Lo

w

Lo

w

Industry AttractivenessOverall the motorcycle industry seems to be

relatively attractive with a good profit potential.

It is highly concentrated which possibly indicates

a healthy degree of rivalry but the industry enjoys

significantly high barriers to entry.

Most of the main manufacturers have been able

to create strong brands and differentiated

products, thus creating high customer loyalty.

HD is well positioned in this Industry.

HD has created a very strong brand and markets

its HD experience as unique. It is this

differentiated products/service which

distinguishes them apart from their main rivals,

and a clear differentiator.

They have economy of scale, technical abilities

and financial muscle to maintain and grow their

brand presence in this industry.

INDUSTRY ANALYSIS: INDUSTRY VALUE CHAIN

Product Development

Supply Chain ManufacturingSales and Marketing

After Sales Service

Limited Involement

Market research

R&D

Prototyping

Component suppliers

Energy Suppliers

Assembly

Customization

Quality and Control

Distribution dealerships

Inventory

Financing

Advertising

Social Media Communication

Warranties

Maintenance

Spares

Reuse/Recycle

Key Insights

Product development is key in this industry. Consumer preferences and regulations are dynamic and Industry Players need the ability

develop products that meet the needs of their target markets. HD has a good product development record and the R&D resources to

keep up with changes in consumer preferences.

The heavyweight market segment values quality and service in their buying decision, which makes it important for these Industry Players to

build close relationships with dealers to ensure this market requirement is fulfilled. HD prides itself for excellent quality and supports

their product globally through their dealer networks

INDUSTRY ANALYSIS: KEY INDUSTRY SUCCESS FACTORSCompanies must build a strong brand reputation and

image in order to create brand loyalty. This must be

backed up by expected product warrantees and

guarantees to establish trust in the brand.

Companies must be able to manage an

extended supply chain in order to

effectively deliver and support the various

product offerings globally.

Clever financing arrangements

gives more customers access to

a companies’ products.

Major industry players require

ongoing investment in production

technology to achieve scale

economies as well as the required

production capacity to meet

demand.

Companies must have the ability to design

new products to cater for emerging

consumer trends. They must be able to

protect their IP and unique features of

product offerings through application of

patents and copyrights

Companies must offer sufficient product line

breadth in order to give consumers a range of

options. Industry players must be able to offer

a differentiated product range to attract new

customers and keep existing ones.

Global and Regional footprint of dealerships are

required to reach target markets. This must be

backed up by effective after-sales service which

include the maintenance of bikes and a full range

of spares at dealerships.

Key Insight:HD performs well in each of the industry KSFs

COMPETITOR & CUSTOMER ANALYSIS

COMPETITOR ANALYSIS: RELATIVE EVALUATION

Critical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score

Research and Development 0.2 2 0.1 2 0.4 4 0.8

Price 0.1 5 0.5 3 0.3 2 0.2

Product diversity 0.15 4 0.6 2 0.3 2 0.3

Design and Quality 0.05 3 0.15 2 0.1 3 0.15

Customer loyalty 0.2 4 0.6 3 0.6 3 0.6

Financial Position 0.05 2 0.1 3 0.15 3 0.15

Brand 0.1 2 0.2 4 0.4 4 0.4

Market Share 0.15 2 0.3 2 0.3 3 0.45

1 2.85 2.55 3.05

COMPETITOR ANALYSIS: STRATEGIC GROUP MAP

Low

High

High

LowPrice

Innovation

CUSTOMER NEEDS ANALYSIS: EVOLUTION

Commodities

Generic biking wear

Goods

Biking accessories

Services

Online retailing platform

Customers centric Focus on the quality

Experience

Render Authenticity

Apparel Shopping Experience

Engagement on social media

HOG membership

HD Rider clubs

Travel and Tourism packages

Personalization

FAKE REAL

FAKE FAKE

REAL FAKE

REAL REAL

INTERNAL ANALYSIS: FINANCIAL RATIOSYear 2015 2014 2013 2012

Ratio

Gross Profit Margin 44% 43% 42% 42%

Operating Profit Margin 19% 21% 20% 18%

Net Profit Margin 13% 14% 12% 11%

Return on Asset 8% 9% 8% 7%

Return on Equity 41% 29% 24% 24%

Current ratio 1.45 1.65 1.59 2.70

Acid Test 1.23 1.46 1.42 2.43

Debt to Asset 0.82 0.69 0.68 0.72

Debt to Equity 4.43 2.28 2.13 2.59

Long - term Debt to Equity 2.63 1.29 1.14 1.71

Times Interest earned 95.38 307.78 25.49 21.73

Average collection period 36.39 29.28 27.14 23.95

INTERNAL ANALYSIS: CAPABILITY ASSESMENT

Processes Systems

Staff

All the systems, procedures and

processes, formal and informal, that

help the organisation function:

• Training systems

• Accounting procedures

• Budgeting systems

• Point of sales systems

• Information systems to ensure

smooth production

• Human resource systems to

ensure training and development

The company’s crucial

processes:

- Planning of manufacturing to

ensure short lead-times

- Supply of components

- Sales targets

- Well established distribution

centres to allow for short lead-

times

HD provides employees with bursaries for external studies

as well as in-house distant learning.

INTERNAL ANALYSIS: RISK ANALYSISMarket RiskReputational

Risk

Credit Risk

Liquidity Risk

The risk of incurring

financial losses due to

counterparts (suppliers)

failing to meet their

obligations.

Impact: Not severe as

mainly financed through

banks

Probability: low

Mitigation: Maintain

current business model

Arises from inadequate

employees or systems.

Impact: Loss in reputation,

quality, increase in cost, loss

in market share

Probability: low

Mitigation: Maintain strong

corporate culture, training

development, incentives

Regulatory RiskProbability that HD does not meet its financial

obligations

Impact: Loss of customers and brand image

tarnished. Difficult to recover.

Probability: Low

Mitigation: Good balance sheet

Possible government intervention and increase in

gas emissions.

Probability: Med

Mitigation: Reduce gas emission and increase R&D.

Adhere to legislation globally through sustainably

report.

Possible high exposure of

independent dealership and

customers not meeting financial

commitments of HD credit offered.

Impact: Not severe as mainly

financed through banks

Probability: low

Mitigation: Review business

model.

High Reliance on independent dealer

networks to create demand.

Probability: Medium

Mitigation: Relationship with all dealerships.

Operational Risk

INTERNAL ANALYSIS: HD SWOT

• Diversification

• Product Portfolio

• Brand Strength

• Market Share in

USA

•Excellent supplier

relationship

•Well positioned in

the customers

mind - “freedom

and strength.”

ST

RE

NG

TH

S

•Aging Target

Market

• Seasonality

• High input costs

•High cost per

finished unit

•Poor marketing

techniques

•Stigmatism of

Hells Angels

•.

WE

AK

NE

SS

ES

•Penetrate Emerging Markets•International opportunities• Penetrating Generation Y New models & differentiation•New Marketing Campaigns

OP

PO

RT

UN

ITIE

S

•Competition

•Japanese models

lower pricing

•Loss of market

share in EU

• Legislation

Increased emission

Standards

•Poor Economic

Performance

TH

RE

AT

SS

WO

T!

BUSINESS MODEL

BUSINESS MODEL: PARTICIPATION STRATEGY

Cu

sto

me

r

Se

lec

tio

n

Pro

du

ct

/

Se

rvic

e

Ch

an

ne

l /

De

live

ry

Ge

og

rap

hy

Participation Strategy

Men (35+)

Women (recent)

Young Adults (recent)

Age: from 45

Upper Income

Seek change / freedom

Socially aware

Status image

“Mean machines”- Range

of motorbikes

Customisation

Parts and Accessories

Division

HOG’S membership –

uniqueness

HD Financial services –

finance subsidiary of HD

Selective dealerships

internationally

Showrooms

Strategic

manufacturing

regions, i.e. India,

Brazil and USA.

Dominant presence in

USA

6400 employees

worldwide

Increased growth in

China, Brazil, Singapore,

Russia, Dubai, Czech

Republic, Vietnam,

Philippines and South

Africa

BUSINESS MODEL: RESOURCE STRATEGY

Strategic Processes

Promotion – HD does not generalise itself, rather only promotes the image and products through unique and exclusive channels.

Processes – HD is product and process focused.

Partners – HD has key specific partners which they have aligned themselves with strategically, 2,500 parts that are supplied by 700 direct suppliers of which around 200 are key suppliers. There is a fair amount of complexity within the supply chain.Employees – HD employs a diverse workforce and focuses on equality for all.

Organisation – HD strategic asst is the brand and the customer loyalty entrenched within the HD brand image.

Pro

mo

tio

n

Pro

cess

Pa

rtn

ers

Peo

ple

Org

an

isa

tio

n

-Key partners; subtle

advertising in movies

-Dealerships displays

-Rallies - displays

-Lifestyle – not transport

-Low traditional

marketing

• Efficient supply chain

• Lean inventory

management

• Skilled personnel

• High costs low equipment

utilization

• High Degree of flexibility

• Product flow variable,

planning and scheduling

are difficult.

-Catalyst

-National Society of

Black Engineers

-National society of

woman engineers

-Employees

-Suppliers

On the job training

Web based learning

Scholarships

HD Repair Training

School

HD corporate

headquarters

are in Milwaukee,

Wis. The worldwide

dealer and

distributor network

is a strategic assets

and value

networks.

Core competencies Strategic assetsResource Strategy

Str

ate

gic

As

se

ts

Co

re c

om

pe

ten

cie

s

Competitive advantage

BUSINESS MODEL: PROFIT STRATEGY

Eff

icie

nc

y

rati

o t

ren

ds

Co

st

dri

ve

rs

Co

st

of

ca

pit

al

Inc

om

e

str

ea

ms

Pri

cin

g

ap

pro

ac

h p

er

targ

et

ma

rke

t

Profit Strategy

Sustainable

sourcing of raw

materials and

components.

Up skilling of

labor force to

improve

productivity and

efficiency.

•Accessories

and Apparel

•Motorcycles

•Dealerships

•Peripherals

from Rallys

Target market is

middle to upper

LSM.

Traditionally

been male and

age 45+. Latest

market approach

to include

females and

younger

generations.

Low cost of

capital,

operating in a

low inflation

environment

within USA.

Hire seasonal workers to match

seasonal demand and consolidate

manufacturing tasks.

HD has a current Inventory turnover

of 8 times annually. They have

experienced a positive trend in their

Accounts receivable turnover over

the past 4 years.

BUSINESS MODEL: COMPETITIVE STRATEGY

Overall low cost provider

strategy

Focused differentiation

strategy

Focussed low cost strategy

Broad differentiation

strategyBest cost provider strategy

Ma

rket

Ta

rge

t

Broa

d

Narr

ow

Competitive

Advantage

Low

CostDifferentia

tion

Harley-Davidson adopts a

focused-differentiation

strategy whereby their

focus is on the luxury

heavyweight motor cycles,

where the product and

service is a lifestyle.

This lifestyle sells an

identify which HD drivers

can identify with and be

part of an elite group.

A strategic control point is

that HD owns the Harley

Experience that they

promise to their customers

and leveraging on this

helps lock in customers.

KEY INSIGHTS:

STRATEGIC PERSPECTIVE

STRATEGIC PERSPECTIVE: R LOOP Key Insight: HD has a well established and integrated R-Loop that should enable their continued growth.

STRATEGIC PERSPECTIVE: BLUE OCEAN ERRC GRID

0123456

Custom HD Touring BMW Performance

Standard Electric (To Be)

Use HD’s R&D, innovation and manufacturing strengths to develop an E-bike range that speak to the growing number of

environmentally conscious consumers. HD can piggyback on the battery and performance technology that Tesla has

successfully brought to market already. The E-bikes can also use the Tesla charging stations that are widely available in North

America, Western Europe and China. This range would incorporate the latest technology trends with the objective of creating

an E-bike range that is kind to the environment but at the same time high-tech, comfortable, high performance and safer than

rival offers.

Value Creation

Reduce

Create

Raise

Eliminate

• Cost• Operating cost• Complexity• Environmental

Impact• Maintenance

• Electric• Solar• Greener

technologies

• Reliability• Efficiency• Technological

advances

• Carbon Emissions

CONCLUSIONS AND RECOMMENDATIONS

• Focused differentiation strategy

• Iconic brand and following

• Innovation and technology

• Efficient production

• High quality products

Conclusions

Recommendations – Focus Pillars

Growth :

Expansion into

new regions and

motorcycle

classes. I.e. new

Lightweights

Continuous

Improvement

Invest in R&D

facilities.

Leadership :

• Engaged employees

• Success

• Live values

• empowerment &

creativity

Sustainability

•Product

Development

•Optimizing

business

process