Case: Harley-Davidson: The Harley Way of Life

Brought back from near death, Harley-Davidson Motorcycles represents a true

American success story. Reacting to global competition, Harley has been able to
reestablish itself as the dominant maker of big bikes in the United States. However,
success often breeds imitation, and Harley faces a mixture of domestic and foreign
competitors encroaching on its market. Can it meet the challenge?

Harley-Davidson
When Harley-Davidson was founded in 1903, it was one of over 100 firms producing
motorcycles in the United States. The U.S. government became an important customer
for the company's high-powered, reliable bikes, using them in both world wars. By the
1950s, Harley-Davidson was the only remaining American manufacturer. 1
But British competitors were beginning to enter the market with faster, lighter-weight
bikes. Honda Motor Company of Japan began marketing lightweight bikes in the United
States, moving into middleweight vehicles in the 1960s. Harley initially tried to compete
by manufacturing smaller bikes but had difficulty making them profitably. The company
even purchased an Italian motorcycle firm, Aermacchi, but many of its dealers were
reluctant to sell the small Aermacchi Harleys. 2 American Machine and Foundry Co.
(AMF) took over Harley in 1969, expanding its portfolio of recreational products. AMF
increased production from 14,000 bikes to 50,000 bikes per year. This rapid expansion
led to significant problems with quality, however, and better built Japanese motorcycles
began to take over the market. Harley's share of its major U.S. market heavyweight
motorcycles fell to 23 percent. 3
In 1981, a group of 13 managers bought Harley-Davidson back from AMF and began to
turn the company around. Richard Teerlink, CEO of Harley since 1987, joined the
company that year as chief financial officer. He described the problem the new
management faced: "The problem was us. The problem was the guys in the white shirts
and ties." He explained that "our solution was to get back to detail. The key was to know
the business, know the customer, and pay attention to detail." 4 The key comments in
this process were increasing quality and improving service to customers and dealers.
Management kept the classic Harley style and focused on the company's traditional
strength--heavyweight and super-heavyweight bikes. Once Harley's quality image had
been restored, the company slowly began to expand production. The company made
only 280 bikes per day in January 1992, increasing output to 345 by the end of the year.
Despite increasing demand, production was scheduled to reach only 420 per day,
approximately 100,000 per year, by 1996. 5
The popularity of the motorcycles continued to increase throughout the 1980s. The
average Harley purchaser was in his late thirties, with an average household income of
over $40,000. Teerlink didn't like the description of his customers as "aging" baby
boomers: "Our customers want the sense of adventure that they get on our
Case adapted from: Schermerhorn, Hunt, Osborn: Organizational Behavior, 8th
Edition Student Companion Site, 2000-2012 John Wiley & Sons, Inc. http://bcs.wiley.com/hebcs/Books?action=resource&bcsId=1212&itemId=047120367X&resourceId=637

bikes....Harley-Davidson doesn't sell transportation, we sell transformation. We sell

excitement, a way of life." 6 Managers participated in this lifestyle, many riding their
bikes to work and participating in rallies. 7 The company built on the enthusiasm of its
customers by creating the Harley Owners Group (H.O.G.). H.O.G. members receive a
bimonthly magazine, emergency road service, Harley rental programs for trips, and
opportunities to meet and ride with other Harley owners.
Although the company had been exporting motorcycles ever since it was founded, it
wasn't until the late 1980s that Harley-Davidson management began to think seriously
about international markets. Traditionally, the company's ads had been translated word
for word into foreign languages. Now, ads were developed specifically for different
markets, and rallies were adapted to fit local customs. In 1993, a branch office of
H.O.G. was set up in Frankfurt, Germany, to serve European owners and fans.
According to Wilke, "As the saying goes, we needed to think global but act local." 8
The company also began to actively recruit and develop dealers in Europe and Japan. It
purchased a Japanese distribution company and built a large parts warehouse in
Germany to support its European operations. 9 The bikes proved to be as popular
abroad as in the United States. Japanese owners ranged from middle-aged men who
had first seen Harleys ridden by American soldiers just after World War II, to younger
riders who were intrigued by the mechanics or the American image. It was an expensive
interest, with bike prices overseas ranging up to $25,000. 10 Foreign dealers were just
as enthusiastic as their customers. At the ninetieth birthday rally, the general manager
of a chain of Harley-Davidson dealerships in Greece summed up his feelings about his
product: "You can own a Suzuki or a Kawasaki, but you can only love a Harley. It's the
only bike you can develop a relationship with." 11
Harley-Davidson continued to look for ways to expand its activities. On a biking tour in
Europe, Wilke realized that German motorcyclists rode at high speeds, often more than
100 mph. As a result, the company began to study ways to give Harleys a smoother
ride. It also began to emphasize accessories that would give riders more protection. 12
The company also created a line of Harley Motor Accessories, available through dealers
or by catalog, all adorned with the Harley-Davidson logo. These jackets, caps, T-shirts,
and other items became popular with nonbikers as well. In fact, the clothing and parts
had a higher profit margin than the motorcycles; nonbike products made up as much as
half of sales at some dealers.
Despite pressure from customers and dealers, Harley-Davidson's top management
resisted the temptation to expand at a faster pace. Teerlink explained that, although the
company had looked into manufacturing overseas, "our customers are buying a piece of
the American dream. Overseas manufacturing just wouldn't work for them." 13 The
company reaffirmed its long-term strategic objectives: to be number one in consumer
satisfaction in the United States and abroad, to develop the ability to produce and
market more than 100,000 units per year by 1996, and support those sales with parts,
accessories, and merchandise. 14
Case adapted from: Schermerhorn, Hunt, Osborn: Organizational Behavior, 8th
Edition Student Companion Site, 2000-2012 John Wiley & Sons, Inc. http://bcs.wiley.com/hebcs/Books?action=resource&bcsId=1212&itemId=047120367X&resourceId=637

International Efforts
Harley continues to make inroads in overseas markets. Important events include a joint
venture it has launched with Porsche AG of Stuttgart, Germany, in which they will
"source and assemble powertrain components for use in potential new motorcycle
products." 15 Also noteworthy is the June 23,1997 announcement that Jeffrey L.
Bleustein has taken over as Harley-Davidson's president and CEO. Richard Teerlink
remained the chairman. 16
One interesting area of development is Japan. Harley-Davidson Japan KK estimates
that 51,000 of its bikes can be found on the roads and that that number is increasing
rapidly. One event assisting in this rise is the government's removal of a restriction that
required drivers to pass a stringent National Police Agency examination for bikes over
401 cc. Drivers now must only pass a local driving school test. The next step in
promoting Harleys will be to persuade the police to permit two to ride on a bike on
highways, a practice that is presently illegal. As a result of these initiatives, HarleyDavidson expects 50,000 new large motorbike licenses to be granted in 1997, almost
double that of a year before. 17
Harley motorcycles are among America's fastest-growing exports to Japan. Japanese
bikers bought 4,387 Harleys from January through August 1997, up 27 percent from a
year before. To rev up sales, Harley's Japanese subsidiary is obsessing over details by
customizing its marketing approach to Japanese tastes. Harley also offers shinier and
more complete tool kits than those offered in the United States. 18
Harley bikes have long been considered symbols of prestige in Japan. Before World
War II, they were built under a licensing arrangement by a small company called Rikuo.
Toshiaki Iijima, 56, the president of a construction company, has shelled out $54,000 on
his 1340 cc red Ultra Classic Electric Glide, including $28,000 for a sidecar to help him
keep his balance. Consistent with their U.S. counterparts, many Japanese enthusiasts
see themselves as rebels on wheels.

Success Breeds Imitation

A handful of new U.S. motorcycle manufacturers are trying to catch a ride with HarleyDavidson's "Made in America" craze. With Harley-Davidson's control of 47 percent of
the domestic market for heavyweight machines (chrome-laden cruisers, aerodynamic
rocket bikes mostly produced by the Japanese, and oversize touring motorcycles), its
dominance remains secure. However, with manufacturers such as Big Dog Motorcycles,
Polaris Industries, and Excelsior-Henderson starting to produce larger bikes, Harley's
success is currently stimulating new ventures. 19
Industry analyst Don Brown of DJB Associates estimates the U.S. retain sales of street
bikes will exceed 231,000 in 1997, up 44 percent since 1991. Worldwide, heavyweight
motorcycles represent a $4.8 billion market. Harley has been steadily increasing
Case adapted from: Schermerhorn, Hunt, Osborn: Organizational Behavior, 8th
Edition Student Companion Site, 2000-2012 John Wiley & Sons, Inc. http://bcs.wiley.com/hebcs/Books?action=resource&bcsId=1212&itemId=047120367X&resourceId=637

production, from 118,000 bikes in 1996 to 131,000 in 1997, with a new production plant
on the way as well.20
Big Dog represents the high end, building customized bikes that run upwards of
$22,000 each, compared to $16,000 for a Harley. Its 55 employees will turn out about
300 bikes in 1997. Polaris, a $1.2 billion snowmobile manufacturer, is aiming its $12,500
Victory at its present all-terrain vehicle and personal watercraft consumers. Excelsior is
providing the Super X, due out in 1998, for between $16,000 to $20,000, with an annual
capacity of 20,000 motorcycles produced in its Belle Plaine, Minnesota plant. It remains
to be seen what impact these new producers have on Harley. 21

Endnotes
1. Boyd, Malia. "Harley-Davidson Motor Company," Incentive, September 1993: 2627.
2. Shrader, Charles, Chance, Susanah, Hinrichs, Stuart, and Hoffman, Alan.
"Harley-Davidson, Inc. - 1991," in Fred R. David, Strategic Management, 4th ed.
(New York: Macmillan Publishing Company, 1993): 655.
3. Ibid.
4. Peak, Martha H. "Harley-Davidson: Going Whole Hog to Provide Stakeholder
Satisfaction," Management Review, 82, June 1993: 53.
5. Harley-Davidson, 1992 Form 10-K: 33.
6. Peak, op. cit., p. 53.
7. Kelly, Kevin and Miller, Karen Lowrey."The Rumble Heard Round the World:
Harleys," Business Week, May 24, 1993: 60.
8. Ibid.
9. Shrader, op. cit., p. 655.
10. Kelly, op. cit., p. 60.
11. Potok, Mark and Tyson, Rae. "100,000 Converge to Pay Homage," USA Today,
June 10, 1993: 1-2.
12. Kelly, op. cit., p. 60.
13. Peak, op. cit., p. 53.
14. Harley-Davidson, 1992 Annual Report, 14: 19.
15. http://www.PRNewswire.com, Harley-Davidson and Porsche Set Up Joint
Venture

Case adapted from: Schermerhorn, Hunt, Osborn: Organizational Behavior, 8th

Edition Student Companion Site, 2000-2012 John Wiley & Sons, Inc. http://bcs.wiley.com/hebcs/Books?action=resource&bcsId=1212&itemId=047120367X&resourceId=637

16. http://www.PRNewswire.com, Bleustein Appointed Chief Executive Officer of

Harley-Davidson, Inc.
17. Dallas, Sandra and Thornton, Emily."Japan's Bikers: The Tame Ones," Business
Week, October 6, 1997: 30D.
18. Ibid.
19. Stevens, Karen and Kurschner, Dale."That Vroom! You Hear May Not Be a
Harly," Business Week, October 20, 1997: 159.
20. Ibid.
21. Ibid.

Case adapted from: Schermerhorn, Hunt, Osborn: Organizational Behavior, 8th

Edition Student Companion Site, 2000-2012 John Wiley & Sons, Inc. http://bcs.wiley.com/hebcs/Books?action=resource&bcsId=1212&itemId=047120367X&resourceId=637