Business Strategy

CASE STUDY QUESTIONS: HARLEY VS. HONDA

Compare Harley-Davidson’s resources and

capabilities with those of Honda. Are they similar? Which of the two
companies would you say has capabilities that can result in competitive
advantage?
Although Honda and Harley had similar resources, the extent to which these resources were developed and
exploited, as well as its importance and strengths, provides Honda with competitive advantage. Following a
cost advantage but also innovation strategy, Honda managed to develop and use its resources to perfection.
With reference to this, Honda was much more advanced in terms of technology and know-how and was not
restrained with low budget and limited capital. On the other hand, we should not disregard Harley, which
even though did not make to reach the success of its rival, did manage, through a differentiated and unique
product, establish and maintain an extremely strong reputation and recognizable brand name that has
managed to sustain for over a century.

RESOURCES HARLEY-DAVIDSON HONDA

Tangible

Finances Limited Possesses financial strength to

bare heavier investments.
Plant and equipment Few plants Modern plants with equipment.
Location One in US, one in Brazil and a Invests in plants throughout the
third is being constructed in world, mostly low cost markets.
India
Technology Much behind Honda Advanced technology
Reputation Strong reputation and brand Reputation due to car
name. manufacturing. Affordable
bikes.
Relationships Single-minded focus to its
Intangible

brand equity.
Elimination of past acquisitions
Potential relationship with
Zongshen Motorcycle Group in
China
Know how Committed specialized labor Highly trained work force.
but much less know-how than Invests more in HR.
Honda (Lack of resources)

In terms of capabilities, Honda was far ahead of Harley. With low cost production, innovation and attractive
design of motorcycles, Honda had excellent product development and low cost manufacturing capabilities
thanks to advanced technology. Heavy investments in R&D ensured that all the models were strategically
developed to meet the demand, and to make Honda a global motorcycle name, and one of the toughest
Harley’s rivals. Honda has developed its strategy to ensure that these resources are used to the greatest
effect. Its low cost manufacturing and fast cycle new product development

Harley vs. Honda Page 2

 CAPABILITIES HARLEY-DAVIDSON HONDA
Product development and design Weak Honda focuses on product
innovation and design. Fights
every threat with new products.
Engineering Weak Core technical strength.
Operations Continuous improvements Invests in plants throughout the
world, mostly low cost markets.
R&D In comparison to Honda, Strong R&D. Innovative and
Harley is very weak with fast-cycle new product
regards to R&D. development.
Marketing Excellent brand management Responds to market trends and
and reputation. demand.
Sales Excellent customer service.

However, even though Harley was not able to compete on technology, it managed to convert these
weaknesses and make a virtue out of its outdated technology and traditional design. Its push-rod engines
and recycled designs have become a trademark and central to the retro look appeal of the hog.

What are the challenges facing Harley-Davidson as it enters the 21st

century? What are Harley’s current sources of competitive advantage? Can
these be sustained in light of the latest competitor moves?

Harley vs. Honda Page 3

Challenges
The current situation of Harley Davidson is much better than it was many years ago but it still has many
challenges and weaknesses to overcome. First of all, the core customers of the company, the baby boomers
are aging, the average customer’s age has increased significantly and this creates severe concerns regarding
H-D future. Secondly, the world has changed dramatically; there are cultural differences, other lifestyles are
now attractive and consumers tend to prefer a smoother and more fashionable lifestyle that Harley-
Davidson’s one. Thus, we could say that there is an old-fashioned perception of the brand and this is a really
important issue especially when H-D targets international markets such as Europe, because European
customers are more fashion sensitive and technologically cautious. Third, we cannot forget that Harley-
Davidson is a company attached to USA, and it is considered a part of the American culture. Hence, the
international markets have different cultures and customers have a different way of thinking (For example
Chinese customers consider the motorcycle just as a way of transportation which contradicts with H-D image
for using motorcycles as a way of life and hobby. Also, many people worldwide have a negative opinion for
US for several reasons and because of that they might avoid to buy products so attached to American
culture). Finally, Harley has to confront some practical difficulties that it faces such as diseconomies of scales
(especially in comparison with its competitors). Thus, because of diseconomies of scales it has much higher
production costs and it has to charge much higher prices. It is worth noting that another significant challenge
regarding prices is the tariffs and the legislation of many international markets as India where they have to
charge even higher prices.

Sources of competitive advantage & current strategic movements

Harley Davidson has realized its position, its strengths and its weaknesses. Thus, it bets on her strong points
and tries to overcome its flaws. First of all we could say that Harley-Davidson has studied a lot its
competitors and it has realized that they cannot compete with Honda in economies of scale or in its
technological knowhow. Thus, it follows a specific strategy focused on its own competencies.
The strongest competitive advantage of Harley –Davidson is its strong established brand name and the
company decided that they should singe-minded focus on the brand. Keith Wandell, CEO of Harley-Davidson,
said few months ago: “The fact is we must focus both our effort and our investment on the H-D brand, as
we believe this provides an optimal path to sustained, meaningful, long-term growth”. And this is what
they did. They preferred to ignore short-term profits and invest on branding for assuring long-term
profitability by focusing all its experience and commitment to its core customer base. Furthermore, they
realized that the consolidated companies did not manage to be integrated to H-D brand and because of that
they decided the elimination of the Buell product line (it was a company too integrated to Harley-Davidson
and because of that it was difficult to sell to a different customer group as a separate entity) and they sold
MV Agusta (it has never been integrated to Harley-Davidson and it did not live up to their expectation of
offering better and faster developing new products that would not offend the core loyal customers).
Moreover, they plan in order to protect their branding name by shipping less bikes than they even anticipate
their dealers will sell at retails.
Another unique competitive advantage of Harley is Harley Owners Group, HOG, which is growing and
through many events worldwide sponsored by the company and its dealers, it helps to establish a unique
image, add value to the brand and attract more customers.
Furthermore, Keith Wandell declared that they shifted to a more labor-centric way of management and
operation. They decided to re-engineer the whole operating structure by integrating a more cost-oriented
structure. In order to succeed this, they restructured its motorcycle assembly operation by consolidating the

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plants in USA, making the system more flexible and taking tough decisions such as mass lay-offs. On the
other hand, they believe that their employees are too valuable and that they have to improve their relations
with them. So in order to improve their performance they decided to solve the existed internal issues. At the
end of 2010 they organized meetings in the plant in Wisconsin with their employees to hear their ideas and
their recommendations, share information, motivate them and decide collectively the necessary changes.
The target of Keith Wandell is to make his employees committed to the company, feel part of it and finally
work harder for Harley-Davidson’s future (increase productivity without decreasing quality).
Keith Wandell decided that they have to do many things in order to compete the giants such as Honda. Here
are the main strategies except for the already mentioned above (focus on brand, HOG and reengineering)
followed globally by the company and some extra recommendations:

Market penetration
They should increase advertising and marketing expenses in existing markets such as USA, Japan and Europe
in order to maintain and steadily increase its market share. This is not so easy for Harley because it does not
have the resources for increasing them heavily as Honda does. Furthermore, they have set as a priority
developing markets such as India and China (the largest motorcycle markets worldwide). As regards to India,
they have already 5 independent dealerships, there is huge brand excitement and the Indian customer base
is growing. Consequently, they decided to construct a plant in Haryana, India (it will be ready in June 2011)
to cover the demand and reduce the prices (it will reduce costs by 20-25%). But, there are several challenges
in this market. It is already dominated from the Japanese competitors who came earlier and its products face
heavy legislations regarding emission, noise and huge tariffs. Despite the challenges, India is a huge
untapped market with much potential for H-D. Sanjay Tripathi, the marketing director of H-D India in
February 2011 said: “We are not a motorcycle company. We are a culture on two wheels. And we want to
convert dreams of owning a Harley into a reality for Indian riders”. Regarding China, there are three
authorized dealers, but it is a difficult market. Firstly, Chinese have the perception that motorcycles are just
means of transportation, thus H-D sales are not satisfying but the sales of accessories and clothes is
increasing dramatically, an important fact for building brand. Another challenge in Chinese business
environment is the relations which makes difficult the entry. Harley is trying to create an alliance with the
Chinese Zongshen Motorcycle Group in order to facilitate its entry.

Product development
They should reduce the complexity and improve the efficiency of their motorcycles. There are many good
ideas but Harley does not have the resources needed to invest in all of them. Thus, Keith Wandell said:
“There’s going to be a “rifle shot” approach to new ideas rather than a wasteful “shotgun” approach.”

Market development
They should reduce the age of their customers and attract 35 years old or younger drivers. Also, they should
attract female, African-American and Hispanic riders. In addition, they should overcome law issues. For
example, currently Harley-Davidson tries to use again the American government for negotiating with
international markets. Last month President Obama visited India to discuss trade between the two countries
with target to decrease the importing tariffs to American products.

Diversification
They should differentiate their products by two different ways. The first one is the Horizontal Diversification.
They should provide new products that will appeal to current customers even though they are different. The

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second one is the Concentric Diversification. They should launch new recreational models which target new
younger customers.

During its last interview, the CEO of Harley-Davidson sounded optimistic about Harley’s future worldwide.
He knows that he cannot fight with Honda because of lack of resources and diseconomies of scale but they
can maintain their position in heavyweight motorcycle market, make steady growing steps and increase
further their revenues by securing their strong future.

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