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Business Analysis Plan

(Excerpt)

Harley-Davidson, Inc

3700 W. Juneau Avenue

Milwaukee WI 53208

Phone: (414) 342-4680

Fax: (414) 343-8230

http://www.harley-davidson.com

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1.0 Table of Contents 1.0 Table of Contents…………………………………………………………………………….2-3

2.0 Marketing Situation Analysis…………………………………………………………………...4

2.1 Company Description……………………………………………………………4-5

2.2 Organizational Culture……………………………………………………………...5

2.3 Mission Statement………………………………………………………………….5

2.4 Universal Appeal…………………………………………………………………...5

2.5 Core Values……………………………………………………………………........5

2.6 Vision……………………………………………………………………………....5

2.7 Financial Performance……………………………………………………………...6

2.8 Context, Customers, Competition, Collaborators………………………………...6-7

3.0 Strategy Analysis……………………………………………………………………………..7-12

3.1 Organizational Structure…………………………………………………………7-8

3.2 Three E Fair Process…………………………………………………………….8-9

3.3 Operations…………………………………………………………………………9

3.4 Industry Overview…………………………………………………………………9

3.5 BCG Growth Share………………………………………………………………10

3.6 Blue Ocean Strategy………………………………………………………………11

3.7 General Force Analysis……………………………………………………………11

3.8 Core Competency & Resource Analysis………………………………………..11-12

3.9 Organic Growth…………………………………………………………………..12

4.0 Innovation & Technology…………………………………………………………………….12

4.1 Risk Management…………………………………………………………………12

4.2 Technological Environment………………………………………………………12

4.3 Innovative Thinking…………………………………………………………….....13

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5.0 Opportunity & Issues Analysis…………………………………………………………….13-14

6.0 Objectives…………………………………………………………………………………….14

7.0 Marketing Strategy (4 P's)………………………………………………………………….14-16

8.0 Recommended Action Programs………………………………………………………………16

9.0 Financials…………………………………………………………………………………...16-23

9.1 Cash Flow Statement…..……………………………………………………….. 16-17

9.2 Income Statement……………………………………………………………......17-18

9.3 Summary of Performance/Key Assumptions……………………………………18-19

9.4 Pro Forma Income Statement………………………………………………………19

9.5 Projections……………………………………………………………………….19-20

9.6 Balance Sheet…………………………………………………………………….20-21

9.7 Ratio Analysis……………………………………………………………………21-23

10.0 Sources……………………………………………………………………………………...24-27

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2.0 Marketing Situation Analysis

2.1 Company Description: The Harley Davidson Motor Company has been in business since 1903. The company manufactures motorcycles and related parts and accessories, and it operates in two segments: Motorcycles and Related Products, and Financial Services. The production segment engages in designing, manufacturing, and selling primarily heavyweight touring, custom, and performance motorcycles, as well as motorcycle parts, accessories, clothing and collectibles under the Harley Davidson and Buell brand names. The Financial Services segment offers a variety of financing and insurance options for the purchase of new and used motorcycles in the United States, Canada, and Europe.

The following outlines the major milestones of the Harley Davidson Motor Company:

Historical Milestones:

1903 William S. Harley and the Davidson brothers – Walter and Arthur – handcraft their first three motorcycles in Milwaukee, Wisconsin. William A. Davidson later joins the enterprise. 1909 Introduction of the first Harley-Davidson® V-Twin engine. 1917-1918 Production of 20,000 military motorcycles to serve the U.S. Allied forces in World War I. 1930s Harley-Davidson and Indian are the sole U.S. motorcycle manufacturers to survive the Great Depression. 1941-45 Nearly all of Harley-Davidson’s manufacturing output supports the World War II effort of the U.S. and its Allies, with more than 90,000 motorcycles used by the Allied forces. 1947 To meet the exploding, postwar demand for motorcycles, Harley-Davidson acquires a second manufacturing plant – the Capitol Drive facility in Wauwatosa, Wisconsin. 1957 The lightweight and sporty XL Sportster® model is introduced. 1965 Privately-held family ownership ends with the first public stock offering. 1969 Merger with American Machine and Foundry (AMF). 14,000 motorcycles produced annually. 1971 Introduction of the FX Super Glide® model – a hybrid of the Electra-Glide® and Sportster® models – and the start of the “factory custom.” 1973 Motorcycle final assembly moves to York, Pennsylvania., to meet growing demand. 1977 The FXRS Low Rider® joins the Harley-Davidson model line, establishing the “factory custom” phenomenon. 1981 Thirteen members of Harley-Davidson’s senior management purchase the company from AMF in a leveraged buyout and implement new quality management and manufacturing methods. 1982 Harley-Davidson successfully petitions the U.S. federal government for tariffs on imported Japanese motorcycles flooding the U.S. market. 1983 Harley Owners Group (H.O.G.) is established.

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1984 Introduction of the Evolution® V-Twin engine and the first Softail® model. 1986 Return to public ownership. Harley-Davidson stock begins trading at $11 per share at its Initial Public Offering. The Motor Company regains its top position in the U.S. super heavyweight market. 1987 At the request of Harley-Davidson, tariffs on Japanese motorcycles end one year ahead of schedule. Harley-Davidson is listed on the New York Stock Exchange under the symbol HDI. 1991 The Dyna family of motorcycles makes its debut with the FXDB Sturgis®. 1993 Harley-Davidson Financial Services is founded. 1995 Harley-Davidson formalizes its unique Partnership relationship with its unionized workforce. 1998 Harley-Davidson acquires Buell Motorcycle Company, opens a new powertrain plant in Menomonee Falls, Wisconsin and builds a new final assembly plant in Kansas City, Missouri. 1999 The Twin Cam 88® powertrain is introduced on the Dyna and Touring models. 2000 Stock splits for the fifth time since 1986. 2001 The Harley-Davidson VRSCA V-Rod® is introduced for the 2002 model year. It’s the first production motorcycle with a liquid-cooled engine in Company history. 2003 More than 1 million people help launch Harley-Davidson’s second century. The 100th Anniversary year is capped by a massive celebration in Milwaukee

2.2 Organizational Culture:

Harley Davidson Motor Company employs approximately 9,000 people worldwide and considers its employees its greatest competitive advantage. Every employee at Harley Davidson is encouraged, and expected, to contribute his or her thoughts, and take the initiative to identify and help solve problems within the company. To foster this type of involvement, layers of management have been minimized; an “open door” policy extends throughout the company, with easy access to senior management; salaried and unionized employees are full participants in many key decisions, and employee contributions are recognized and rewarded in many ways, including an employee bonus plan tied to the company’s performance. The level of employee involvement at Harley Davidson Motor Company is one of the things that sets its culture apart from other businesses.

2.3 Mission Statement:

Harley Davidson Incorporated fulfills dreams through the experience of motorcycling, by providing to motorcyclists, and to the public, an expanding line of motorcycles and branded products and services in selected market segments.

2.4 Universal Appeal

Harley Davidson promotes a motorcycle experience that cuts across social and cultural lines by emphasizing the universal values of freedom and adventure.

2.5 Harley Davidson Core Values: Tell the Truth Be Fair Keep Your Promises Respect the Individual Encourage Intellectual Curiosity These values define the character of Harley Davidson Motor Company and illustrate how the employees are to relate to one another and to the company’s stakeholders, which include its customers, dealers, and suppliers. The company fosters these values by actively communicating their importance and encouraging employee involvement and development at all levels. .

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2.6 Vision: Harley-Davidson, Inc. is an action-oriented, international company, and a leader in its commitment to continuously improve their mutually beneficial relationships with stakeholders (customers, suppliers, employees, shareholders, governments, and society). Harley-Davidson believes the key to success is to balance stakeholders’ interests through the empowerment of all employees to focus on value-added activities.

2.7 Financial Performance:

In 2007, Harley Davidson held 49.4% of the U.S. heavyweight market share, and 10.7% of the market share in Europe. The Company’s Revenue was $5.73 billion, compared to $5.80 billion in 2006. Motorcycle sales

made up nearly 80% of this revenue, Parts and Accessories 15%, and General Merchandise 5%. Wholesale shipments of motorcycles were 330,619 units for the full year, a 5.3 percent decrease compared to 2006. Diluted earnings per share were $3.74, declining 4.8 percent compared to 2006.

2.8 Context, Customers, Competition, Collaborators:

Overview:

The overall heavyweight market was down 5 percent in 2007 and is reflected in a 6.2 percent decrease in the Company’s U.S. sales. The company attributes this decrease in sales to declining customer confidence and problems in the housing and credit industries (Hoovers; 2008). International sales were strong, however, as the company saw a significant increase in international shipments for the year, up from 21.8 percent of total shipments in 2006 to 26.9 percent in 2007. The Company believes that the strong international retail sales

growth is evidence that its investments in developing its international business are continuing to pay off.

Motorcycles are considered discretionary items, and demand is driven by personal income and interest rates (Hoovers; 2008). According to research, experts disagree on 2008 sales forecasts for motorcycles, this due in part to the uncertainty of the credit markets, and to volatile fuel prices. Projections range from flat to declining, according to the Los Angeles Times; however, according to First Research forecasts, output of U.S. motorcycles can expect to grow at an annual compounded rate of 4.2 percent between 2007 and 2012. Despite market uncertainty, experts predict that motorcycle manufacturers will continue to introduce new models regardless of cost pressures (Hoovers; 2008).

Target Market:

The demographic profile for the average Harley Davidson customers between the years 2002 and 2006 were mostly males, aged 40 and over, with a median income of $80,000 or more. The following highlights the most recent demographics for the year 2006:

2006: Gender: Male 88%, Female 12% Median Age: 47 Median Income: $82,000 Purchasers: Previous Harley Davidson owner 49%, previous owner of a competitive motorcycle 37%, first time motorcycle purchaser 14%

Competition: Domestic: Harley Davidson’s strongest U.S. motorcycle manufacturing competitor is Victory Motorcycles. This company is a 10-year-old subsidiary of the Medina, Minnesota based snowmobile and ATV maker,

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Polaris Industries, who unveiled two futuristic-styled luxury touring motorcycles, the Vision Street, and the Vision Tour, at the 25th Annual Cycle World International Motorcycle Show in January 2007. Although competition in the motorcycle industry is not new to Harley Davidson, the fact that it has held the position as the major manufacturer of American made motorcycles has helped them to create a niche in the market. The rise of Victory Motorcycles, however, presents a unique challenge to their dominant position. In 2003, Victory gained substantial presence in the motorcycle manufacturing market through the production of their best-selling model to date, the Vegas, which has a distinct modern styling that helped the company create a brand image as the “New American Motorcycle.” This image has paid off, as the company has grown at approximately 10 times the rate of the motorcycle industry over the last several years (Business Week; 2007). International: Bayerische Motoren Werke Aktiengesellschaft (BMW group) is one of Harley Davidson’s strongest International motorcycle manufacturing competitors. This company is headquartered in Munich, Germany, and has been in business for over 80 years. It operates in three segments: automobile sales, motorcycle sales, and financial services. The company has dealership locations around the world, offers a variety of high selling, high performance, touring, and sport bikes, and features bike events and rider training courses in various locations (Business Week; BMW Group; 2007). Collaborators: Harley-Davidson sells its products through independent dealers and distributors located in the United States and overseas. Currently, Harley Davidson has a network of over 1,300 dealerships in more than 60 countries. Each dealership hosts various events and benefits throughout the year, and offers its customers local sales assistance, technical support, and financial services. Many dealerships have a local chapter customers can join, and some offer rental equipment and motorcycle riding classes.

3.0 Strategy Analysis:

Company Focus: quality, innovation, and strong relationships

Divergence: an emotional appeal that emphasizes a motorcycle riding lifestyle

Compelling Tagline: “Live to Ride, Ride to Live”

3.1 Organizational Structure:

The following highlights Harley Davidson’s organizational structure, referred to as Leadership Circles. It is this type of operational structure that encourages a highly collaborative culture and well-coordinated decision making:

▪ Create Demand Circle: Marketing and sales functions for motorcycles, parts & accessories, and apparel; customer service; H.O.G.; Rider’s Edge, and the museum and archives

▪ Produce Products Circle: Engineering functions; manufacturing operations, materials and cost management, styling, and quality functions

▪ Provide Support Circle: Finance, Human Resources, legal, government affairs, information services, communication, strategic planning, and new business development

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Circle leaders jointly manage their respective circle business and develop strategy. No single individual is the circle leader; rather, the leadership role of each circle moves to different members based on the issue being addressed. All three circles overlap to create the Leadership and Strategy Council (LSC), which consists of members from each circle, as well as the Chief Operating Officers of Harley Davidson Motor Company, Buell Motorcycle Company, and Harley Davidson Financial Services, and the Chief Executive Officer of Harley Davidson, Inc. This organizational structure deviates from the standard old school pyramid shaped manufacturing structure, with clear lines of separation. Rather, these overlapping Leadership Circles promote a democratic operating organization that has applied the concept of self-directed work teams clear up to the senior management level, and is meant to foster interdependence, as it emphasizes participation and collaboration (Imperato, 1997). The Harley Davidson Motor Company partners with two unions to make decisions and plan strategically: the International Association of Machinists (IAM), and the Paper, Allied-Industrial, Chemical, and Energy Workers (PACE). Background: In 1998, the Harley Davidson Company opened a new plant in Kansas City, and it reflected a shift from the traditional management structure to one that is flatter, and more team based. The goal was to increase employee commitment and self-management. The layout placed managers and administrators right on the floor alongside the other employees, making them more accessible, with the employees working in three types of teams (Grant, 2004): Natural work groups – every worker belongs to a work group, with 8–15 people per group Process operating groups – comprised of representatives from each work group. There are four process operating groups, each oversees the plant’s four operating divisions: paint, assembly, fabrication, and engine production Plant leadership group – a 14-member committee, responsible for governing the facility comprised of the plant manager; the presidents of both unions representing the plant workforce; four elected representatives from the process groups; an elected representative from maintenance, and six administrators

Create

Demand

Produce

Products

Provide

Support

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This change in organizational structure has served the Company well, and has since moved up to its Corporate offices, where the concept of Leadership Circles has been implemented. 3.2 Three E Fair Process: To successfully execute business strategy, a company needs all levels of the organization engaged, aligned around the strategy, and willing to cooperate. Employees must have an attitude of trust and commitment, knowing they are valued, and choosing to go beyond the call of duty to help make the company succeed. This can be achieved through what is referred to as “fair process,” and there are three principles that make this work: engagement, explanation, and expectation clarity (Kim & Mauborgne, p. 171-176, 2005). The following briefly defines each: Engagement: employees need to be involved in the strategic decision-making process. By engaging employees, managers show their respect, and employees tend to have a higher commitment to an organization. Explanation: everyone involved and affected should understand how and why decisions have been made. This enhances learning and helps employees learn to trust their managers’ intentions. Expectation clarity: employees need to know what the standards are and how they will be judged. They need to know the new rules of the game. It is much easier to execute a strategy when everyone understands what is expected of them and how their role affects the outcome. Harley Davidson’s democratic type of organizational structure aligns very well with the concept of fair process, as the goal of the Leadership Circles is to promote interdependence, and to involve employees at all levels in the decision-making process. The Company articulates very clearly that they value their employees and have demonstrated this by giving their employees the right to elect their representatives, and by minimizing the lines of separation between management and the workforce, so as to include and welcome input from all within the organization.

3.3 Operations:

The Harley Davidson Motor Company operates five domestic production facilities and seven key business facilities, employs approximately 9,000 people worldwide, and sells its products through independent dealers and distributors in the U.S. and overseas. The Company continues to invest in upgrading its operations to improve productivity and efficiency. This has included investments in plant and equipment, and the development of manufacturing capabilities, such as total quality management and just in time scheduling (Grant, 2004).

Background:

One key aspect of the Company’s growth strategy early on was to upgrade its distribution network. Independent dealerships are the point of contact for consumers, and prior to the 1990’s many of the U.S. dealerships were poorly managed. To address this weakness, the Company implemented a dealer development program aimed to increase support for dealers, while at the same time requiring higher standards be met, all aimed to improve the retail experience for customers. Training programs were implemented, and dealers were required to carry a full line of Harley products, and perform service on Harley bikes. This was an innovative strategy at the time, as Harley took the lead in providing new services to customers, such as test ride facilities, rider instruction classes, and motorcycle rentals (Grant, 2004)

Another disadvantage that the Company has met head on is its high production costs relative to competitors, based primarily on customized components that must be purchased and brought in. Compared to Honda,

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Harley Davidson’s production volumes are low, which results in significant cost disadvantages. Additionally, smaller manufacturers, such as BMW have the capacity to leverage its buying power through their automobile business, unlike Harley Davidson. To counter this weakness, Harley Davidson extended its quality improvement program to include its suppliers, and established the supplier advisory council (SAC), to improve purchasing efficiency by sharing best practices with supplier executives in the network. The SAC is a means to share information and strategies. Additionally, suppliers are included in the new product development process (Grant, 2004).

3.4 Industry Overview:

The Harley Davidson Company competes in the motorcycle and other small engine vehicle manufacturing sector. U.S. motorcycle manufacturers include about 60 companies with a combined annual revenue of about $6 billion. The industry is highly concentrated, and Harley Davidson dominates the U.S. manufacturing sector. Major products include touring and cruiser bikes for comfort and long-distance rides (67% of industry revenue); off road cycles (25 percent); dual sport for both on and off-road riding (3 percent); and scooters (5 percent) (Hoovers, 2008). The factors that the industry primarily competes on are quality, price, comfort, and customization capabilities.

3.5 The BCG Growth-Share: According to the matrix developed by Bruce Henderson, of the Boston Consulting Group, in the 1970’s, companies and their business units can be grouped into one of four categories, based on their market growth and market share relative to their biggest competitors (NetMBA, 2008). The following highlights the biggest competitors of the Harley Davidson Motor Company. Note: each of the competitors listed below are strong and established companies that are distinct from the Harley Davidson Company in that they specialize in other business units, such as automobile and off-road vehicle manufacturing. This affects the nature of the category they are placed in, as the motorcycle divisions of these companies are not independent from the other operating business units, and can either be carried by the other units, or help other business units gain a competitive advantage. This is one of the stated weaknesses of this matrix (NetMBA, 2008). POLARIS: In the spring of 1998, the Polaris Company launched the Victory Motorcycle, thereby targeting the high-margin, high-growth cruiser market previously dominated by Harley Davidson, and has since successfully unveiled several new models, with the “made in the USA” appeal that has challenged the unique standing of Harley Davidson and helped them create their own niche in the market. The Polaris Company also manufactures ATV’s and snowmobiles and has been in business for over 50 years. It is an efficient and aggressive company that holds high-tech manufacturing capabilities, and sees quality, unique design, and American made products as their competitive advantage. The company has a combined distribution network of over 1,600 dealers, with Victory motorcycles available at over 300 dealers in the United States, Canada, and the UK. In 2007, Victory Motorcycle sales made up just 6% of the company’s total sales. The goal for 2009 is to achieve a 5% market share in the cruiser and touring segments (Polaris Annual Report, 2007). Category: Question Mark. The Victory Motorcycle line is a relatively new division of Polaris, with a small market share, yet is growing rapidly, and thereby has the potential of rising to a ‘star’ in the motorcycle market. BMW Although BMW motorcycle sales are a relatively small part of total company sales, the company is committed to supporting and developing its line of bikes, and offers a full line of performance, touring, and cruiser bikes for consumers. BMW is an established company that has been selling automobiles for 85 years, with a mission statement clearly defined through 2020, and that is to serve as the, “world’s leading provider of premium products and premiums services for individual mobility” (BMW Annual Report, 2007). The company is a strong International competitor of the Harley Davidson Motor Company in the way of technical innovation, having pioneered such things as advanced suspension systems, anti-lock brakes, and fuel injection. Technological innovations such as these have allowed BMW motorcycles to carry lower operating

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costs than the competition, a strong selling point in today’s struggling economy. Most of the BMW motorcycles are manufactured in a single plant near Berlin, and in addition to the technological innovation that comes out of its 70,000 square foot research and development center, the bikes are known for their reliability, safety, and comfort (Grant, 2004). The company saw record motorcycle sales in 2007, up 2.4% from the previous year, and selling a total of 102,467 bikes, this attributed to the new models of the G650X series, which have been available since spring 2007. Motorcycle sales were divergent from one country the next, however, with contraction in the U.S. market of 5.7% from the previous year (BMW Annual Report, 2007). Category: Cash Cows. While BMW holds a relatively small share in the motorcycle market compared to Harley Davidson, it is an established and successful company, overall, that has seen growth in motorcycle sales. HONDA Honda performance bikes have dominated motorcycle racing for decades and are associated with the world’s greatest racers. The company entered the US market in 1959, first with cheaper, lighter bikes; then with higher priced performance and touring models. Honda’s capabilities of product innovation together with their heavy investment in R&D, and their efficient distribution have enabled the company to develop technical superiority at a lower price. The firm has also committed the largest advertising budget in the industry and established from early on, the largest dealership network in the US. Additionally, Honda is known as a superior engineering company, and is considered as the world’s leader in four-stroke technology, and has successfully transferred these capabilities into a broad product offering (e.g. motorcycles, automobiles, and power products). Significantly, Honda is the Japanese motorcycle manufacturer most dependent on the US market, as above 50 percent of its consolidated revenues in 1999 was derived from its US operations (Grant, 2004). Category: Cash Cows. This company has been a mature leader in the motorcycle market for many years. 3.6 Blue Ocean Strategy: According to Kim and Mauborgne, a head on fight with the competition over existing market space is not the way to achieve success; rather, one must make the competition irrelevant by moving to a Blue-Ocean strategy (Kim & Mauborgne, p. 22, 2007). This is a strategy that creates uncontested market space through ongoing evolution and constant innovation within an organization. To rise as the leader, a business must have high ambitions, be willing to take risks, maintain a long-term focus, and continually be creating those uncontested market spaces. The key is the strategy of generating value innovation, which involves pursuing differentiation and low cost simultaneously (Kim & Mauborgne, p. 13, 2005). The Harley Davidson Motor Company has been successful at tapping those Blue Oceans in the U.S. motorcycle industry, evident by their strong and long-standing reputation for quality and innovation, their consistent financial performance, and their dominance in the market. The challenge, however, is in the International market, where they hold a relatively small market share, and where competition is fierce. Additionally, the Harley brand is known for its higher priced models, compared to many of its competitors, a factor that may become increasingly significant considering the current state of the economy. 3.7 General Force Analysis: Three of the more important forces and trends that shape the big picture opportunity for the Harley Davidson Company are: 1) the economy, 2) the increase in female motorcycle riders, 3) the rise of a fierce U.S. competitor.

1) The current state of the economy, and the rising unemployment rates, poses a threat to the Company, as potential and current customers may think twice about investing in discretionary items

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such as motorcycles. However, on the other side, due to the volatility of energy prices, those who use motorcycles as a primary means of transportation may increase.

2) Female motorcycle riders are on the rise, which means the Company has the potential to tap into this relatively new segment of consumers. More recent statistics show that females make up just 12% of the Company’s sales; however, it is clear the Company is actively targeting this segment, evident by a section on their web site devoted to women riders, which includes a guide for women riders; and apparel, accessories, and events specifically geared for women.

3) Victory Motorcycles appears to be a rising star in the U.S. Motorcycle market and has successfully imitated Harley Davidson’s “American Made” status.

3.8 Core Competency and Resource Analysis: Skills:

▪ A diverse and highly collaborative, competent, creative, and knowledgeable staff ▪ A solid reputation for producing innovative and quality products ▪ Exceptional customer service: Harley Davidson is dedicated to creating positive motorcycle

experiences and developing strong relationships with customers that is built on trust, dependability, and meaningful advice

Capabilities:

▪ Membership: the Harley Owners Group (H.O.G.) offers customers the opportunity to be a part of the Harley “family” and features events, rides, and membership benefits to all interested customers

▪ Local Access: the Harley Davidson Motor Company enjoys a strong network of dealerships around the world

▪ Training and Consistency: The Harley Davidson University offers education to dealers in the competencies of customer satisfaction, inventory management, service proficiency and front-line sales, ensuring consistent retail experience for customers worldwide

▪ Computer Technology: access to sophisticated and multi-lingual web-sites for domestic and international customers, offered for most independent dealer locations

▪ Convenience: Satellite stores are in malls and other high traffic areas around the country 3.9 Organic Growth: Organic Growth represents the “underlying strength and vitality” of a business (Hess, p. 1, 2007). It is about growing your company, not through costly mergers and acquisitions, but rather about creating economic value by generating more customers, new products, and operational efficiencies. It is about growing from within. To qualify as an Organic Growth winner, a company must out compete their industry competition in areas such as sales growth and cash flow from operations growth. It must perform well in comparison with major stock market indices and must also generate an average return on equity well above their peers. Significantly, the Harley Davidson Motor Company has been ranked as one of the top 22 Organic Growth Companies (Hess, 2007), and is considered superior specifically regarding its operational excellence. Technology drives the Company’s productivity and metric tracking, and three simple rules drive its organizational strategy: know the customer, take nothing for granted, and never stop learning (Hess, p. 165, 2007).

4.0 Innovation & Technology

4.1 Risk Management:

Harley Davidson Motor Company operates under a Corporate Governance Policy aimed to promote fairness, financial transparency, and accountability to all stakeholders. The Board of Directors is comprised of many independent members who serve to ensure that Harley Davidson Motor Company adheres to the

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requirements of the NYSE (New York Stock Exchange), and other applicable federal and state laws and regulations. There are also three independent committees: the Audit Committee, the Human Resources Committee, and the Nominating and Corporate Governance Committee, each of which has a written charter. A complete description of the company’s Corporate Governance Policy and its Bylaws can be viewed on its web-site.

Included on the Company’s Corporate Governance web-page is the Harley Davidson Code of Business Conduct, which is available to download in eight languages. This document covers very specific details regarding the Company’s adherence to state and federal laws, employment practices, their emphasis on fairness and honesty, conflict of interest issues, media communication policies, and the protection of the Company’s Intellectual Property. While too extensive to include in this plan, the document can be viewed here: http://investor.harley-davidson.com/downloads/CG_CodeConduct.pdf

4.2 Technological Environment:

Harley Davidson Motor Company provides a sophisticated, multi-lingual web-site for its internal and external domestic and international customers, through Internet and Intranet access.

The Company uses Fortinet FortiGate systems, which provides both performance and security for Harley Davidson and its independently owned dealerships. The FortiGate system allows for secure connections between multiple stores and locations. The system provides firewall, antivirus, IPS functionality and Web filtering functionality to limit viewable Websites. Harley-Davidson Dealer Systems also use Fortinet's FortiManager-400A as the centralized management platform for the Fortinet security infrastructure. (Retrieved online at http://www.marketwatch.com/news/story/fortinet-provides-services-harley-davidson-dealers/story.aspx?guid=%7BAF59BAEF-0583-47B0-A21D-B67AB2BA73BF%7D)

4.3 Innovative Thinking:

The development of the Harley V-Twin engine in 1909 was only the beginning of a commitment to technology innovation at Harley Davidson Motor Company (see Historical Milestones, section 2.2). One of its more recent and interesting innovations is the Company’s alliance with the Ford Motor Company in creating the new 2008 Ford-Harley Davidson F-150 truck. See the following report for more information:http://www.motortrend.com/roadtests/trucks/112_0808_2008_harley_davidson_f_150_supercrew/index.html

Other ways the Company engages in innovative thinking is through their emphasis on smart environmental policy and their involvement in the community. Harley Davidson follows a company specific Environmental Policy and issues this policy statement: “Harley-Davidson believes in protecting the environment. The Company is committed to the advancement of operating and management practices that minimize, within reasonable limits, the impact of its operations on the environment.”(retrieved online @ http://investor.harley-davidson.com/downloads/CG_Environmental_Policy.pdf).

This concern for the environment is illustrated by the Company’s recycling, waste reduction, and energy conservation initiatives; and in the Company’s Foundation, which provides financial support to community funded projects, such as the Susquehanna Watershed Education Program, the Urban Ecology Center Neighborhood Environmental Education Project, and the Neighborhood House of Milwaukee. Each one of these programs is committed to educating people on the environment and its impact on lives (retrieved online @ http://www.harleydavidson.com/en_US/media/downloads/HDFS/HDCommInvestReport.pdf?HDCWPSession=zX9ZLRbQ4XVcHPFL7Sq4NfJgV1DTvCsc2X5VlQT3GGJfr2hLvWzn!-130734056!148512177&locale=en_US&bmLocale=en_US

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Additionally, Harley Davidson Motor Company won the 2002 Governor’s Award for Environmental Excellence, when it improved its power paint coating operation in York in 2001. The net result of their efforts were improved quality, reduced waste and material consumption, and improved safety (http://www.greenworks.tv/govawards2002/winners/resource/harley.asp).

5.0 Opportunity & Issues Analysis:

Strengths:

▪ Harley Davidson holds the dominant position in the U.S. motorcycle market

▪ Harley Davidson has a longstanding reputation for innovation and quality

Weaknesses:

▪ The majority of sales are among males and high salaried consumers, resulting in a limited market segment penetration

▪ The current brand image of the company (American culture icon) may limit penetration in diverse markets overseas

Opportunities:

▪ The rise in gasoline prices have increased the number of people buying motorcycles for primary transportation

▪ There is a potential to expand sales into other market segments, such as those targeting women, and first-time bike buyers

▪ Invest in R & D for a line of bikes powered by alternative fuels

Threats:

▪ There has been an increase in domestic competition (Victory Motorcycles)

▪ There continues to be strong competition in the international market (BMW, Honda)

▪ There is a potential increase in production costs due to the increase in fuel prices

▪ A strained economy means less disposable income for the average consumer to spend on luxury items, such as motorcycles

6.0 Objectives:

In 2008, the Company anticipates the U.S. retail motorcycle environment will continue to be challenging, while it anticipates strong retail growth in the international markets. Overall, it expects moderate revenue growth, lower operating margins, and some diluted earnings per share growth rate of between 4 and 7 percent. The Company expects to ship between 68,000 and 72,000 Harley Davidson motorcycles in the first quarter, which compares to 67, 761 units in the first quarter of 2007.

To generate continued consumer awareness and customer interest, Harley Davidson Motor Company will be bringing new motorcycles to the market in 2008, will open the Harley Davidson Museum, and promote hundreds of rides and events leading up to the 105th Anniversary Celebration in Milwaukee in the summer of 2008.

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7.0 Marketing Strategy (4 P’s):

Products & Prices:

Motorcycles:

Harley Davidson Motor Company manufactures the following five motorcycle “Families”:

▪ Sportster Family - 7 models to choose from, prices starting at $6,695.00

▪ Dyna Family - 6 models to choose from, prices starting at $11,995.00

▪ Softail Family - 8 models to choose from, prices starting at $15,895.00

▪ VRSC Family - 3 models to choose from, prices starting at $14,995.00

▪ Touring Family - 7 models to choose from, prices starting at $16,545.00

Genuine Motor Accessories:

▪ Rider’s Essentials Kits for all models: includes items such as backrests, luggage racks, windshields, etc. (prices vary depending upon model and type of kit)

▪ Customization Kits for all models: these accessories fall into three categories: fit, function, and style and include items such as seats, handlebars, foot controls, storage kits, chrome, custom paint, etc. (prices vary depending upon model and type of kit).

Motorclothes Merchandise: offers a full selection of riding gear for men, women, and children.

Harley Davidson Collectible and Gift Items: coffee mugs, water bottles, picture frames, key rings, etc. (prices vary)

**See web-site for complete catalog and pricing information @ http://www.harley-davidson.com/gma/gma_main.jsp?locale=en_US&bmLocale=en_US

Place:

Harley Davidson Motor Company has its corporate headquarters in Milwaukee, Wisconsin, with domestic production facilities in the Milwaukee area, East Troy and Tomahawk, Wisconsin; York, Pennsylvania; and Kansas City, Missouri. Other key business operations are in Chicago, Illinois; Franklin, Wisconsin; Talladega, Alabama; Highland Heights, Ohio; Ann Arbor, Michigan; Carson City, Nevada; and Plano, Texas. Harley Davidson also offers factory tours at three of its production facilities (Wauwatosa, Wisconsin; York, Pennsylvania; and Kansas City, Missouri) for a behind-the-scenes look at the manufacturing process; and offers motorcycle training classes for new, advanced, and group riders through Harley Davidson’s Riders Edge program conducted at various dealerships around the country.

Promotion:

The Company's ability to promote and sell all its motorcycles and related products and services depends, in large part, on the ability of the Company's independent dealer network to sell them to retail customers. The Company depends on the capability of its independent dealers and distributors to develop and implement

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effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. Additionally, the ability of the Company to remain strong, increase its revenues, and expand its Target Market base depends on a variety of factors, including:

1. Efficient production and effective management of operating costs 2. Manage production capacity and changes 3. Develop and implement sales and marketing plans that retain existing retail customers and attract

new retails customers in an increasingly competitive marketplace 4. Sell all its motorcycles and related products and services to its independent dealers and distributors 5. Adjust to fluctuations in foreign currency exchange rates, interest rates, commodity prices and credit

availability 6. Manage regional and worldwide demographic trends and economic and political conditions,

including healthcare inflation, pension reform and tax changes 7. Anticipate consumer confidence in the economy 8. Retain and attract talented employees

Since the Company’s international growth rate is expected to continue to increase at a quicker pace than its domestic shipment rate, Company management has pledged to continue to focus on expanding business in foreign markets and will continue to invest in international marketing and product support activities. A critical issue for international marketing is the extent to which the products and the Harley image need to be adjusted to meet the needs of new overseas markets. One of the central appeals of Harley Davidson motorcycles and accessories in the European and Asian markets has been the Company’s image, which is rooted in American culture, but the composition of demand and the customer profile is different in other overseas markets.

Europe will continue to be the focal point of the Company’s overseas endeavors, as it is the second largest heavyweight motorcycle market in the world. It is an extremely competitive market with established leaders for performance bikes such as BMW and Honda. Additionally, European roads and riding styles are different from the United States. To address these challenges, the Company has modified some of its models to better meet the needs and tastes of its European customers, and a key component of its international strategy will continue to be building its dealer networks overseas.

8.0 Recommended Action Programs:

Considering the domestic challenges facing the Company, and its current Target Market, it is recommended that for the next one to three years, the Company should focus on the following sales growth strategies:

▪ Continue to update and create new models based on consumer research, remaining a leading innovator in the motorcycle industry

▪ Work toward expanding the consumer base to include more females and first-time motorcycle buyers. This can be accomplished by the development of an aggressive marketing and advertising campaign geared toward women; and by introducing a line of lighter, less expensive bikes that would draw in those who cannot afford the high price of a Harley, or those who do not want to invest in the high price for their first motorcycle purchase

▪ Capitalize on the present growth opportunity caused by rising fuel prices and invest in R & D for the development of additional accessories geared toward comfort and practicality. Invest in advertising and promotional strategies geared toward the primary transportation rider.

▪ Continue to move into new foreign markets, and use market research to determine changes that need to be implemented regarding the Harley image in these markets

▪ Increase international sales by continuing to develop strong dealership networks overseas

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Additionally, due to an increased concern for the environment, limitations on oil resources, and the introduction of alternative energy, it would behoove the Harley Davidson Motor Company to remain competitive by conducting Research and Development, and perhaps investing in a small line of motorcycles powered by alternative fuels. Although motorcycles are known to have excellent gas mileage, they are also known to emit 90 times the hydrocarbons per mile as compared to a typical passenger car, which means they can contribute to a significant amount of air pollution, which is bad for people and the environment. To address this, electric motorcycles, also called Zero Emissions Vehicle (ZEV) motorcycles, have been introduced by some companies. These motorcycles run off a battery, produce zero emissions, and their energy costs are only a tenth of fuel costs. In addition, because they are electric, they are extremely versatile, in that they can operate with solar, wind, geothermal, nuclear or coal as their energy source (http://greenlivingideas.com/motorcycles/the-clean-green-motorcyle-machine.html)