Strategic Management REPORT #1: STRATEGY ANALYSIS Harley Davidson Zach Jones 1. INTRODUCTION This project is one of three reports I will complete as part of the strategic analysis of Harley-Davidson. This first report focuses on strategy analysis and includes the following sections. First, the major concepts related to the competitive advantage analysis will be defined. Second, those concepts will be applied to the case of Harley-Davidson in order to analyze its competitive position in the global automobile industry.
The analysis of Harley-Davidson will be followed by its evaluation to identify the major problem the company is facing and a proposed solution to overcome the challenge and continue to achieve a competitive advantage. 2. CONCEPTS Several strategic tools are used to determine whether a firm has achieved competitive advantage. These most tools are SWOT analysis, value chain analysis, and competitive advantage analysis. Each of the tools involved a number of concepts. This section will define the key concepts involved in the SWOT analysis, the value chain analysis, and competitive advantage analysis. . 1. SWOT analysis SWOT analysis is a strategic tool used to examine external forces and internal resources in order to determine a firm’s ability to respond effectively to the requirements of its external environment. The concepts related to external forces are defined first, followed by the concepts of the internal resources. The purpose of the external analysis is to identify opportunities (O) and threats (T) in a firm external environment. Opportunities are external factors that a firm can take advantage of to accomplish its objectives.
Threats are external factors that can limit a firm’s ability to achieve its objectives. Both opportunities and threats can be either industry or general forces. The purpose of the internal analysis is to identify strengths (S) and weaknesses (W) in a firm’s internal organization. Strengths are internal resources and competencies that a firm can effectively use to achieve its objectives. Weaknesses are internal resources and competencies that undermine a firm’s ability to achieve its objectives. Both strengths and weaknesses can be tangible resources, intangible resources, or organizational capabilities. . 2. Value chain analysis Value chain analysis is a strategic tool used to examine a firm’s competencies in order to identify the activities that a firm should perform to create the most value and achieve competitive advantage. A competency is an activity that is performed very well. A core competency is an activity that is central to a firm’s survival. A distinctive competency is an activity that a firm performs better than any of its competitors. A firm can create the most value (low cost and/or differentiation) when it performs the activity that is both a core and a distinctive competency.
A firm that creates the most value is in a position to achieve a competitive advantage. 2. 3. Competitive advantage analysis Competitive advantage is a set of value-creating strategies that are unique and that result in above-average returns in the long-term. To create the most value and therefore achieve competitive advantage, a company must excel in efficiency and process innovation (if the value sought in low cost), or quality and product innovation (if the value sought is differentiation).
An effective competitive advantage analysis should be based on the conclusions provided by both the SWOT analysis and the value chain analysis. The outcome of the competitive advantage analysis will be the determination of whether a company has or has not achieved competitive advantage. Such determination will constitute the basis for formulation strategies necessary to either sustain existing competitive advantage or create competitive advantage. 2. ANALYSIS Using the previous concepts, a strategic analysis outlining Internal and External factors for Harley-Davidson will be performed.
This analysis will help determine Harley-Davidson’s ability to maintain or create a competitive advantage. 3. 1. SWOT analysis: The SWOT analysis for Harley-Davidson will begin with a look at the company’s external environment. This section will help to identify key opportunities and threats in the general environment as well as in the industry before analyzing the company’s internal strengths and weakness. Harley-Davidson currently has two key opportunities within their industry. These opportunities are the low threat of entry and the bargaining power of suppliers.
For years, Harley-Davidson has been the most reputable heavy motorcycle maker in the world. Due to this high level of reputation and the, the capital needed to enter the market this is an opportunity for Harley-Davidson to continue to hold on to its current market share. In addition, because of Harley-Davidson’s size, smaller parts suppliers have little power to set prices of heavy motorcycle parts. These industry opportunities help Harley-Davidson to create value and expand on its competitive advantage.
General factors such as a rise in demand in international markets as well as a change in market demographics have also created opportunities for Harley-Davidson. Specifically, Demand in the European, Asian, Australian, and Latin American markets is on the rise and is now larger than the U. S market for heavy weight bikes. Females and teenagers are also showing an increased interest in riding bikes. Both the international market growth and the increased interest of different demographic segments will help Harley-Davidson to develop new strategies and gain the competitive advantage.
Although Harley-Davidson has many opportunities, they still face several significant threats from external forces. For example, within the industry Harley faces threats from the intensity of competition and the threat of substitute products. Harley-Davidson is competing with Asian motorcycle makers such as Yamaha, Suzuki, and Honda. While these makers do not specialize in heavy bikes, they do have the potential to reduce Harley-Davidson’s market share as well as provide substitute products for consumers.
Automobiles also pose a threat due to the ever-increasing amount of cars being produced and sold internationally. This has forced Harley-Davidson to spend more money on marketing in foreign markets. In the general environment, Harley-Davidson is encountering changes in European emission standards as well as trade restrictions and legal factors in Asia. In 2015, Europe’s admission standard will become more stringent and could force Harley-Davidson to redesign its motorcycles leading to large increases in the company’s operating costs.
Another threat is high tariffs placed on Harleys. The 60% tariff along with other taxes is causing the price of the bike to double. These General impacts have a negative effect on Harley-Davidson’s overall performance. While Harley-Davidson has no control over environmental factors that affect performance, they do have the power to control internal aspects of the organization. These internal strengths and weaknesses will be discussed in the following sections. Harley-Davidson is the currently the largest motorcycle manufacturer in the United States.
This success is attributed to several strengths organizational strengths. First, Harley-Davidson has a strong reputation, so strong in fact, that 42% of motorcycle purchasers have owned a Harley-Davidson previously. (Intangible) Second, Harley-Davidson offers a vas variety of high quality product lines that suit riders of all ages and experience. (Tangible) Finally, because of the company’s long history and reputation they have developed a strong relationship with suppliers that enable them to provide quality products at minimum cost. Capability). Though Harley-Davidson has many strengths, it also has several glaring weaknesses. One weakness with the company’s intangible resource is that its reputation can be misconstrued. Many consumers associate motorcycle or Harley owners as hooligans or part of a criminal society. This aspect of their reputation can have a negative impact on sales. A tangible weakness of Harley-Davidson’s vast product line has the potential for costly recalls on parts. Lastly, a weakness can be found in the organization’s capabilities.
Harley-Davidson has a dependence on the domestic market that increases its business risk. 3. 2. Value chain analysis (for either the main business or the main product line): Harley-Davidson performs several activities throughout their value chain. The main activity of the organization is the final assembly of motorcycles and other related vehicles. Other activities include the distribution of inputs and outputs, industry leading research and development, sales and marketing, and the manufacturing of Harley-Davidson merchandise. The organization also offers financing options to its customers worldwide.
Of its multiple activities, Harley-Davidson core competency is the final assembly of motorcycles. It can also be said that this assembly process is also a distinct competency given that Harley-Davidson accounts for nearly 60% of the heavy motorcycle market share in the United States. Therefore, Harley-Davidson creates value by manufacturing quality bikes that lead to repeat purchases and a high reputation and brand awareness. 3. 3. Competitive advantage analysis: To achieve a sustainable competitive advantage, Harley-Davidson should meet two strategic requirements.
First, it must successfully use its strengths to take advantage of opportunities, minimize the impact of threats, and correct some of its weaknesses. Second, it needs to be in a position to create the most value for customers. As detailed in the SWOT analysis, despite a few weaknesses, Harley Davidson has been able to use its strengths to take advantage of opportunities such as those available in foreign markets. This will help to overcome the dependency on domestic market revenues and help further stabilize the company.
Harley-Davidson has created value through its core competency of motorcycle assembly by overcoming the potential for recalls and creating unique quality products. 4. EVALUATION The evidence presented in the previous section will now be interpreted to identify a problem Harley-Davidson is confronting. Then the solution that the company can adopt to address its difficulties will be proposed. 4. 1. Problem: To maintain a sustainable comparative advantage, Harley-Davidson needs to use its strengths to take advantage of opportunities while minimizing threats and overcoming its weaknesses.
A key factor determining Harley-Davidson’s future success is their ability to successfully enter into international markets. This is critical due to the organization’s heavy dependence on domestic revenue and the increasing demand for motorcycles globally. The primary challenges are the barriers to enter into the market as well as ever changing legal standards that could force Harley-Davidson to redesign entire product lines in European markets. Emissions standards in Europe are changing and tariffs in Asian markets make the products uneconomical.
As highlighted in previous sections, Harley-Davidson has many strengths that could be used to take advantage of global opportunities. However, their strong brand image fails to transfer to certain global cultures. This and poor marketing techniques have led a low number of new customers in international markets. 4. 2. Solution: A solution to overcome international woes would be to increase marketing efforts on the international stage. Harley-Davidson must create the same value in the brand that Americans hold in overseas markets.
Until this brand equity is created, the quality of the product will not matter. The organization must create the same culture of repeat buyers internationally as they did domestically. That way it will be less important to attract new customers and Harley-Davidson and focus its attention on product development that meets the standards of changing environmental laws abroad. In essence, Harley-Davidson must think outside the box and become more flexible to take advantage of the opportunities internationally. 5.
CONCLUSION This report was an attempt to conduct a strategic analysis of Harley-Davidson. The concepts of a SWOT analysis and Value chain analysis where identified and then applied to the case of Harley-Davidson. Once the internal and external factors were identified and the value chain was laid out, it was revealed that Harley-Davidson could do more to position the itself in international markets. A solution was then identified and explained to help the company achieve and maintain a global competitive advantage.