Harley-Davidson Goes Whole Hog with the
Star Model
Until recently,
Harley-Davidson, Inc. (like so many American manufacturers), faced the risk of
extinction (Hagerty, 2012), a fate nearly suffered three times by Indian
Motorcycle, their biggest U.S. competitor (Droege, 2009). Lack of automation
and flexibility in production had caused the company to become an industry
dinosaur, its outdated 41-building manufacturing complex more fitting for a
museum than a modern production facility (Hagerty, 2012). By introducing robots
to do the heavy lifting and drastically reducing the number of hourly workers, all
production is now done under one roof, and Harley has become nimble enough to
increase or cut production in response to changes in demand (Hagerty, 2012).
According to the
article's accompanying video (Wall Street
Journal, 2012a), Harley-Davidson is now making motorcycles with half as
many hourly workers as it has in the past. The company used to have 62 different
job classifications; there are now only five, and approximately 10% to 20% of
the workforce is comprised of casual workers who are engaged as needed (WSJ, 2012a). Known as a luxury brand,
Harley-Davidson is not doing any of this to bring down the prices of large
luxury bikes, but to make sure that costs are in line with revenue so that if
demand should weaken, the company won't suffer major losses (WSJ, 2012a). The bottom line, according
to Craig Kennison of Robert W. Baird & Co.: "Harley no longer needs
peak production levels to achieve strong profits" (Hagerty, 2012).
In order to
implement cost-cutting measures and better position itself for "future
economic rough patches" (WSJ,
2012b), Harley-Davidson had to gain concessions from the unions representing its
employees. However, there are some things are still done by hand, such as
testing gas tanks for leaks (Hagerty, 2012).
I was immediately
struck by how completely the recent organizational changes at Harley-Davidson,
Inc., reflect the readings from this week. For example, in chapter 6 of his
book, Galbraith states, "Every company needs an organization that changes
as quickly as its business changes" (2006, p. 73). Without a doubt,
Harley-Davidson recognized the need to be able to adjust its production
capabilities in order to maintain profit margins during good times and bad. The
organizational design changes clearly fall within the framework of the Star
Model (Galbraith, 2011):
·
Strategy: Harley-Davidson modified the basic
direction of the company to allow profit growth regardless of increases or
decreases in demand.
·
Structure: The primary area of structural
redesign occurred in the addition of robotics which enabled the company to
downsize its manufacturing complex from 41 buildings to a single building.
·
Processes: Management processes underwent a
drastic change in 2009 when CEO Keith Wandell started the organizational
redesign by successfully negotiating concessions with the union representing
the factory workers to keep the plant in York, Pennsylvania, rather than moving
it to another state (Hagerty, 2012).
·
Rewards: According to the company's web site,
"At Harley-Davidson, we continuously improve our products to enhance the
experience of our riders. We take that same approach to employee benefits"
(Harley-Davidson USA).
·
People: In the area of human resources, changes
occurred in the reduction of job descriptions from 62 to 5.
References
Droege, S.
(2009). Indian Motorcycle company: Strategy for market reentry. Journal of the International Academy for
Case Studies, 15(1), pp. 55-64.
Galbraith, J. R.
(2002). Designing organizations: An
executive guide to strategy, structure, and process. San Francisco, CA:
Jossey-Bass.
Galbraith, J. R.
(2011). The Star Model. pp. 1-6.
Hagerty, J. R.
(2012, September 22). Harley goes lean to build hogs. Wall Street Journal (Online). Retrieved from http://online.wsj.com
Harley-Davidson
USA. Retrieved September 23, 2012, from http://www.harley-davidson.com/wcm/Content/Pages/Career_Opportunities/benefits.jsp?locale=en_US
Wall Street Journal (Online) (2012, September 21). Harley-Davidson revs up for
leaner times (video). Available from http://online.wsj.com
Wall Street Journal (Online) (2012, September 21). Harley ready to ride out rough
patches (slideshow). Available from http://online.wsj.com
This eye-opening post has me hog-wild and ready to embroider a star on my leather motorcycle jacket!
ReplyDeleteI had no idea that Harley Davidson was in this financial crisis and am impressed by their response to it overall! Great job illustrating how they used the Star Model to reorganize their whole structure.
Quick question for you, as I'm not familiar with unions much. What does "gain concessions" mean - the union won't sue since the jobs were being cut? Also, I'm curious as to how all of this spilled over into their showrooms - or if they're franchised out somehow. I'm also wondering, if the stores are Harley owned, could some of the workers from the line have been transferred to stores to increase sales and therefor increase demand? Especially since so much of the appeal of the Harley rests in its engine and signature sound, who better to sell that than someone who used to craft them.
Thank you for sharing!
Best,
Sarah
Great questions, Sarah. The "concessions" were from the local International Association of Machinists and Aerospace Workers (IAM). HD's CEO went to them and said that they would be forced to move the plant to another state unless the union approved a new contract that meant, among other things, laying off half the workers. The union and the workers wisely realized that half the jobs were better than none...they voted overwhelmingly in favor of the new contract.
DeleteRegarding their showrooms...there was no mention of them in the article, but I don't think they've been too affected by the changes in production, only possibly by the changing economy. I had to look on the Harley-Davidson web site to answer your question about the dealers. They're not franchised, but independently owned with a contract with Harley-Davidson. So no opportunity there to transfer employees.
Kerry, great example. Can you elaborate on strategy? You said, "Harley-Davidson modified the basic direction of the company to allow profit growth regardless of increases or decreases in demand." I get a clear sense of changes in processes and structure, but I'd like to learn more about any changes in strategy per se. Did they change their niche?
ReplyDeleteThanks, Brad. No, Harley specifically said that they were not trying to change their niche. They wanted to remain a luxury brand in cruisers, a market in which they have very little competition. Their strategy is to repurpose their manufacturing facilities (starting with the one in York, PA), allowing them to adjust production levels to meet increases/decreases in demand. In order to accomplish this, in addition to automating many of the processes, they have also started using outside suppliers to provide small, easily accessible parts (i.e., brackets and screws) that were formerly made in-house. All of these changes have contributed to their overall strategy of cutting costs to maximize profits. And it's worked...Harley-Davidson's operating profit margin (excluding the financial division) went from 12.5% in 2009 to 16% in 2011.
ReplyDeleteIs that what you meant by changes in strategy?