The British Motorcycle Industry At A Crossroads

Q1. Create a summary of the case

The case talks about the complete collapse of the British motorcycle industry by 1975. Only
one British manufacturer, NVT, remains in operation. In this setting, the British government
commissions the Boston Consulting Group to identify and evaluate strategic alternatives for
NVT and its suppliers. This case summarizes what the consultants discovered as they sized up
the global motorcycle industry and Britain's place in it.

Markets and Products

Talking about markets and products, it is being mentioned in the case that British motorcycles
were sold mostly in North America and Europe. Buyers in these areas used motorcycles
mostly for recreation, not for basic transportation. With the introduction of new recreational
products such as off-road bikes and so-called superbikes, unit sales had risen nearly 16% per
year since 1968. Demand appeared to be reaching saturation. The BCG consultants forecasted
a 4-5% annual growth rate for the coming years. Also, nine out of ten motorcycle buyers in
the U.S., the world’s largest motorcycle market, were men, and more than half were younger
than 25. Following table shows the product attributes that buyers considered most important
in the given case.
Table 1- Factors influencing U.S. Motorcycle buyers

Percent of buyers rating attribute

important or very important
Product Attribute
Quality of workmanship 94.6
Availability of parts 91.6
Handling/performance 88.9
Power/acceleration 85.9
Styling/ appearance 84.6
Recommendation of owners/friends 81.3
Dealer’s reputation 80.4
Dealer’s service 76.9
Resale value 74.8
Warranty coverage 72.1
 Economy of operation 63.9
Test drive 56.3
Owned same make before 34.3

Bikes were often classified by engine displacement, which corresponded roughly to size and
engine power. Common categories included learner’s bikes (<125 cc displacement),
intermediate bikes (125-349 cc), medium bikes (350-449 cc), big bikes (450-749 cc), and
superbikes ( 750 cc).
BCG’s consultants also felt that demand for a particular model would neither rise nor fall
much as long as the model’s price was within 10% of the typical price for its displacement
class. Premiums greater than 10% would cut demand for the model significantly, and
premiums above 40% would wipe out essentially all demand.

Competitors

The main competitors of British motor cycles consists of Honda (and other Japanese rivals),
Harley Davidson (U.S.) and BMW(German). In 1968 , Harley Market shares in the US was 6%,
BMW was 1%, NVT as 6%, Honda as 64% and other companies market share as 23%. Harley-
Davidson maintained a loyal following in the U.S., both because it was the last U.S. made
option for patriotic customers and because its big, tough bikes closely matched a big, tough
set of leather-clad customers.
Coming to Honda , in its globalization efforts, the company had succeeded first in the
market for small motorcycles, but then expanded into larger displacement
classes(125cc~750 cc). The motorcycles were modern but cheaper.
In the past, NVT and its predecessors had produced a full range of motorcycles.
Individual models had been withdrawn, however, as each became unprofitable. Since
the early 1960s, lack of model profitability had prompted the British to exit the 175, 250,
350, 500, and 650 cc classes. In between the period of 1968-1974 the sales for NVT had
decreased and there is shift in sales and market share. In 1975, all of NVT’s remaining
models had displacements of 740 cc or greater.
British motorcycles were also known for their mechanical failures, particularly oil leaks.
Warranty claims were resisted by dealers, and spare parts were hard to come by. Observers
joked that British bikes were particularly popular among riders who enjoyed fixing their own
machines.
Moreover , British models tended to be priced at or slightly above the prices of Japanese
models with comparable displacements, but pricing patterns varied widely over time. In
1973, for instance, Triumph’s Bonneville 750 model was priced 12% below the Honda 750 in
the U.S.; indeed, 1973 was the only year since 1968 that Triumph had not lost market share
in the U.S. In 1975, in an effort to regain profitability, NVT priced its models nearly $400
above comparable Japanese models.
 Design and Production
Honda and NVT took very different approaches for design of a motorcycle as discussed below.
The design of a motorcycle preceded production ,which involved the procurement of raw
materials and components, the production of engine parts, the production of frame parts,
and assembly.

Honda NVT
Design Involved commercial Designed by designer
review and production only.
cost analysis before
design.
Followed a precise flow Pure design
chart. More consideration with non
standardized parts standard parts.
shared.
R&D :1300 people. R&D :100 people.
0.75 people vs 1M 2.7 people vs 1M
18 months from idea to 36 months from idea to
production. production.
Engine and Spare parts Production volume was Low Volume.
production 2M per year.
Plants were specialized. 3 plants not organized
Engine and frame parts to differentiate parts
were in different area. production locations.
Automated production Used very outdated
with advanced machine with labor
technologies. intensive to produce
engine and frame parts.
Accumulate extensive No modern production
experience to reduce experience
20% cost. accumulated.
Assembly Labor intensive, 16400 Most of 2950 people
employee in assembly involved in engine and
plant. frame parts but
minority involved in
assembly.
Cycle time down to a NVT assembly cycle
bare minimum. time was about 1.5
times longer than
Honda.
 Procurement of other Strategic cooperation
components with supplier, even in
house build.
Share and educate
supplier with new
technology , growing up
with supplier.
Big supplier consider
NVT as small customer.
NVT’s supplier were
reluctant to adopt
latest technology in
production.

Selling and Distribution

The distribution subsidiaries of Honda, NVT, and other competitors sold motorcycles to
independent dealerships, which in turn sold the machines to riders. The subsidiaries
handled physical distribution, deployed advertising and promotions to pull consumers into
dealerships, and gave dealers incentives and support to push bikes through the channel.
Physical distribution was straight forward. The companies bought freight services and
packing materials in competitive markets on equal terms.
Advertising and promotion : In the United States in 1975, Honda and NVT had consumer
advertising and promotion budgets of $10 million and $800,000, respectively.
Dealer relations:
• NVT offered considerably less supply to its dealers than Honda or other competitiors.
• Dealers were willing to accept a dollar markup on each Honda bike that as much as
$120 lower than mark up on each British cycle.
• Honda sold its motorcycles in U.S through more dealers than NVT.
• NVT offered considerably less support to its dealers than did Honda or other
Japanese competitors.
• The BCG consultants argued that unit costs associated with selling and distribution
should fall as per company’s overall sales volume in a market, its volume per model,
and its volume per dealer rose, and unit costs should rise as a company offered its
dealers more extensive support.

Strategic Alternatives

Having analyzed the motorcycle industry and Britain’s place in it, the BCG consultants
began to formulate strategic alternatives for NVT. For each of those three, the BCG team
made a detailed projection of volumes, prices, costs, and required investments. From
each projection came a forecast of operating results, financial returns, employment
levels, and the industry’s contribution to the U.K. balance of payments. The team also
examined the sensitivity of each forecast to competitive price cuts and to errors in the
volume projection, and it assessed the implementation risks associated with each
option.
Porter's five forces framework used in developing strategies

To achieve above average profits compare to other industry players in the long run, NVT
needs to develop a sustainable competitive advantage. Industry analysis using Porter Five
Forces can help NVT to map the various forces and identify spaces where NVT can position
itself.
By doing Industry analysis using Porter Five Forces, British Motorcycle Industry at a
Crossroads, can develop four generic competitive strategies.

The four generic competitive strategies that can be pursued in case study are -

Cost Leadership

In cost leadership, British Motorcycle Industry at a Crossroads, can set out to become the low
cost producer in its industry. How it can become cost leader varies based on the industry
forces and structure. In pursuing cost leadership strategy, NVT can assess – (pursuit of
economies of scale, proprietary technology, supply chain management options,
diversification of suppliers, preferential access to raw materials) and other factors.

Differentiation

NVT can pursue differentiation strategy based on the industry forces description in case study.
In a differentiation strategy NVT can seek to be unique in its industry by providing a value
proposition that is cherished by buyers. NVT can select one or more attributes that can
uniquely position it in the eyes of the customers for a specific needs. The goal is to seek
premium price because of differentiation and uniqueness of the offering.

Focus - Cost Focus & Differentiation Focus

The generic strategy of Focus rests on the choice of competitive scope within an industry. NVT
can select a segment or group of segment and tailor its strategy to only serve it. Most
organization follows one variant of focus strategy in real world.

The Focus Strategy has two variants.

(a) In cost focus a British Motorcycle Industry at a Crossroads, can seek a cost advantage in
its chosen segment.
(b) In Differentiation strategy British Motorcycle Industry at a Crossroads, can differentiate
itself in a target segment in its industry.

Both variants of the focus strategy rest on differences between a British Motorcycle Industry
at a Crossroads, target segment and other segments in the industry.
SWOT Analysis

Strengths in SWOT Analysis

Strengths are the NVT capabilities and resources that it can leverage to build a sustainable
competitive advantage in the marketplace. Strengths come from positive aspects of five key
resources & capabilities - activities & processes, physical resources such as land, building,
human resources, financial resources, and past experiences and successes .

- Intellectual Property Rights – NVT has garnered a wide array of patents and copyrights
through innovation and buying those rights from the creators. This can help NVT in thwarting
the challenges of competitors in various industries.

- Strong Brand Equity and Brand Awareness – NVT has some of the most recognized brands
in the domestic market it operates in. Brand recognition plays a significant role in attracting
new customers looking for solutions in Costs, Strategy adjacent industries.

- Strong Balance Sheet and Financial Statement of NVT can help it to invest in new and
diverse projects that can further diversify the revenue stream and increase Return on Sales
(RoS) & other metrics.

- Managing Regulations and Business Environment – NVT operates in an environment where

it faces numerous regulations. In Costs, Strategy areas, the firm needs to navigate
environment by building strong relationship with lobby groups and political network.

- First Mover Advantage – NVT has first mover advantage in number of segments. It has
experimented in various areas Costs, Strategy. The Strategy & Execution solutions & strategies
has helped NVT in coming up with unique solution to tap the un-catered markets.

- Robust Domestic Market that NVT Operates in - The domestic market in which NVT is
operating is both a source of strength and roadblock to the growth and innovation of the
company. Based on details provided in the British Motorcycle Industry at a Crossroads, case
study – NVT can easily grow in its domestic market without much innovation but will require
further investment into research and development to enter international market. The
temptation so far for the managers at NVT is to focus on the domestic market only.

- Superior product and services quality can help NVT to further increase its market share as
the current customer are extremely loyal to it. In British Motorcycle Industry at a Crossroads,
case study there are enough evidences that with such a high quality of products and services,
NVT can compete with other global players in international market.

Weakness in SWOT Analysis

Weaknesses are the areas, capabilities or skills in which NVT lacks. It limits the ability of the
firm to build a sustainable competitive advantage. Weaknesses come from lack or absence of
five key resources & capabilities - physical resources such as land, building, financial
resources, past experiences and successes, activities & processes, and human resources .

- Project Management is too focused on internal delivery rather than considering all the
interests of external stakeholders. This approach can lead to poor public relation and
customer backlash.

- Lack of Work force diversity – I believe that NVT is not diverse enough given that most of
its growth so far is in its domestic market.

- Implementation of Technology in Processes – Even though NVT has integrated technology

in the backend processes it has still not able to harness the power of technology in the front
end processes.

- Organization Culture – It seems that organization culture of NVT is still dominated by turf
wars within various divisions, leading to managers keeping information close to their chests.
This can lead to serious road blocks in future growth as information in silos can result can lead
to missed opportunities in market place.

- Lack of critical talent – I believe that NVT is suffering from lack of critical talent especially in
the field of technology & digital transformation. NVT is struggling to restructure processes in
light of developments in the field of Artificial Intelligence (AI) and machine learning.

- Track record on environment consideration is not very encouraging – NVT track record on
environmental issues is not very encouraging. This can lead to consumer backlash as
customers are now considering environmental protections as integral to part of doing
business.

Opportunities in SWOT Analysis

Opportunities are macro environment factors and developments that NVT can leverage either
to consolidate existing market position or use them for further expansion. Opportunities can
emerge from various factors such as - economic growth, changes in consumer preferences,
political developments & policy changes, technological innovations, and increase in consumer
disposable income .

- Developments in Artificial Intelligence – NVT can use developments in artificial intelligence

to better predict consumer demand, cater to niche segments, and make better
recommendation engines.
- Reducing Cost of Market Entry and Marketing into International Markets –Globalization
along with boom in digital marketing and social media has considerably reduced the risks of
market entry and marketing in international market.

- Changing Technology Landscape – Machine learning and Artificial Intelligence boom is

transforming the technology landscape that NVT operates in. According to NVT can use these
developments in improving efficiencies, lowering costs, and transforming processes.

- Increasing Standardization – NVT can leverage this trend to reduce the number of offerings
in the market and focus the marketing efforts on only the most successful products.

- Growing Market Size and Evolving Preferences of Consumers – Over the last decade and
half the market size has grown at brisk pace. The influx of new customers has also led to
evolution of consumer preferences and tastes. This presents NVT two big challenges – how
to maintain loyal customers and how to cater to the new customers. NVT has tried to diversify
first using different brands and then by adding various features based on customer
preferences.

- Lucrative Opportunities in International Markets – Globalization has led to opportunities in

the international market. NVT is in prime position to tap on those opportunities and grow the
market share. Growth in international market can also help NVT to diversify the risk as it will
be less dependent on the domestic market for revenue.

Threats in SWOT Analysis

Threats are macro environment factors and developments that can derail business model of
NVT. Threats can emerge from various factors such as - changes in consumer preferences,
increase in consumer disposable income, economic growth, political developments & policy
changes, and technological innovations .

- Government Regulations and Bureaucracy – NVT should keep a close eye on the fast
changing government regulations under the growing pressure from protest groups and non
government organization especially regarding to environmental and labor safety aspects.

- Increasing costs component for working in developed market because of environmental

regulations – NVT has to deal with these costs as governments are trying to levy higher
environmental taxes to promote cleaner options. For NVT it may result into higher logistics
costs and higher packaging costs.

- Growing Protectionism - NVT should hedge the risk against growing protectionism ranging
from storing data into international market to diversifying risk by operating into countries at
different economic cycle.

- Threats of New Entrants because of Reducing Costs and Increasing Efficiencies – As NVT
can leverage low cost of reaching customers using social media and e-commerce, so can the
competitors – both local and international competitors.